Insurance rip-offs: Case studies
Dual pricing and 'loyalty penalties' meant existing motor and home insurance customers had higher premiums than new customers.
Home and motor insurance customers could end up paying €100 and more in higher premiums because of dual pricing and ‘price walking’ practices, as the following examples provided by the Central Bank show:
This case study looked at how premiums varied between new motor insurance customers and existing customers wishing to renew their car insurance and showed how renewal customers could end up paying more due to dual pricing practices.
The customers both had similar needs and cost and risk profiles, with the basic premium costing the insurer €700 per annum.
Insurers, however, were found to be offering new customers premiums below this base cost at €686.
By comparison, the existing customer renewing their policy was being charged €791, costing €105 more than the new customer.
Central Bank proposals will improve transparency around the renewal process and alert customers to the option of switching or shopping around.
This case study looked at how the ‘loyalty penalty’ saw long-term motor insurance customers, who did not tend to shop around, being penalised by paying higher premiums.
It compared one customer renewing their policy for the first time and another customer renewing their policy for the ninth time. Both had similar insurance needs and cost and risk profiles.
The basic premium would cost the insurer €700 per annum but when the average ‘loyalty penalty’ was added the longer-term customer paid €112 more for insurance cover.
The customer renewing for the first time was charged €763 per annum compared to €875 being charged to the loyal customer of nine years.
Under Central Bank proposals, this differential will no longer apply as the loyalty penalty will end.
This example shows a similar price differential for home insurance customers renewing their policy for the first time compared to those renewing after nine years due to the 'loyalty penalty'.
Both had the similar insurance needs and cost and risk profiles.
The basic premium would cost the insurer €350 per annum but when the average ‘loyalty penalty’ was added the longer-term customer paid €116 more for insurance cover.
The customer renewing for the first time was charged €357 per annum compared to €473 being charged to the loyal customer of nine years.
Under Central Bank proposals, this differential will no longer apply as the loyalty penalty will end.
