October 4, 2019 7:30:34 AM
Around six million insurance policyholders pay high prices and are not getting a good deal, according to the City regulator.
The Financial Conduct Authority (FCA) made the comments as it published an interim report into the pricing of home and motor insurance.
If those customers paying high premiums paid the average price for their risk they could save around £1.2 billion a year, the regulator said.
It is considering remedies to improve competition, which could include banning or restricting practices such as raising prices for consumers who renew year on year or requiring firms to automatically move consumers to cheaper equivalent deals.
Other potential remedies under consideration include restricting the way that firms use automatic renewal, which could discourage switching.
The FCA is also considering whether firms should publish information about price differentials between their customers.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “This market is not working well for all consumers.
“While a large number of people shop around, many loyal customers are not getting a good deal. We believe this affects around six million consumers.
“We have set out a package of potential remedies to ensure these markets are truly competitive and address the problems we have uncovered. We expect the industry to work with us as we do so.”
The regulator intends to publish a final report and consultation on remedies in the first quarter of 2020.
The FCA said it is concerned that consumers who do not switch or negotiate with their provider end up paying high prices for their insurance.
The watchdog found that:
– Insurers often sell policies at a discount to new customers and increase premiums when customers renew, targeting increases at those less likely to switch.
– Longstanding customers pay more on average, but even some people who switch pay higher prices.
– From the FCA’s consumer research, one in three consumers who paid high premiums showed at least one characteristic of vulnerability, such as having lower financial capability. For consumers who bought combined contents and building insurance, lower income consumers on below £30,000 pay higher margins than those with higher incomes.
– People who pay high premiums are less likely to understand insurance or the impact that renewing has on their premium.
The FCA said that most firms, when setting a price, include their expectations of whether a customer will switch or pay an increased price – but this is not made clear to the customer.
The regulator said it will also continue its work to ensure firms improve the oversight of their pricing practices.
Gillian Guy, chief executive of Citizens Advice, said: “Last year we submitted a super-complaint showing loyal customers are being penalised hundreds of millions of pounds a year on their home insurance alone.
“It’s great to see the FCA acknowledging that the insurance market isn’t working for consumers and pledging to crack down on the loyalty penalty.
“We’re especially happy to hear the regulator say that everything is on the table to make sure customers are getting a fair deal. This includes tackling gradual year-on-year price increases and making companies automatically switch their customers to better deals.
“At the moment these are just proposals. The FCA must now follow through on these bold ideas to stop loyal insurance customers being penalised.”
Association of British Insurers (ABI) director-general Huw Evans said: “We welcome today’s report from the FCA, and the industry will continue to work constructively with the regulator to ensure that the market works better for customers.
“It is important that any unintended consequences are carefully considered to ensure that a fair and balanced approach is achieved for all customers.
“Millions of insurance customers get extremely good deals by shopping around regularly, but we agree that the household and motor insurance markets could work better for consumers who do not shop around at renewal.
“This is not an issue unique to insurance, but we are the only sector to have taken voluntary steps to address the issue and these are bearing fruit already.”
Gareth Shaw, head of money at consumer group Which?, said: “It is right that the regulator is proposing solutions to stop these sharp pricing practices.
“Our research has found existing insurance customers can be left paying hundreds of pounds more than new customers as a result of complex and opaque pricing systems.
“The regulator must now ensure these proposals are brought in swiftly, and that it is ready to take strong action against firms that continue to rip off consumers simply for staying with their providers.”