On 29 September the Financial Conduct Authority (FCA) announced that it would take forward a market study looking at how general insurance firms charge their customers for home and motor insurance. In particular, there is to be a focus on different pricing practices as between new and existing customers (“dual pricing”).
This has been an area of ongoing focus for some time. An intention to investigate dual pricing was first flagged by the FCA in its annual business plan, published in the spring and in July, in a speech on the challenges presented by the age of Big Data and AI Charles Randell, the Chairman of the FCO noted that:
“…. it’s well known that the FCA is concerned about firms using their predictions of customers’ propensity to shop around in imposing significant price rises on customers who do not. Not least because these customers may be vulnerable and such price rises may unfairly exploit that vulnerability.”
However, the submission of a “super complaint” to the Competition and Markets Authority by Citizens Advice on 28 September, in which practices in both the insurance and mortgage and savings industries were highlighted (along with the mobile and broadband industries), appears to have prompted the FCA to give a further timing update for further action. Terms of reference for the FCA’s investigation are expected in the next few weeks.
The essence of Citizen’s Advice’s complaint is that, as a result of the restriction of many pricing deals to new customers, loyal or inactive customers are losing out. They comment that:
“people are being penalised for their loyalty……Huge numbers of customers are on uncompetitive deals, paying far more for a service than a new customer would.”
Citizens Advice has estimated that, across all industries, the aggregate price differential or “loyalty costs” for such consumers amount to “several billion a year”. They also make the point that difficulty in accessing information and switching providers exacerbate the problem and that more vulnerable consumers are often most affected.
Responding to the announcement of the super complaint Andrew Bailey indicated that the FCA would be working closely with the CMA in looking at the issues raised and that:
“We expect firms to look after the interests of all customers and treat them fairly, whether they are new or long-standing.
“It is important to get the balance right so that existing customers do not miss out on the benefits of competition and innovation, including when they purchase or renew their general insurance products.”
The relevant industries had begun to take steps in this area, with the Association of British Insurers and the British Insurance Brokers’ Association publishing Guiding Principles and Action Points in May of this year, but it now seems unlikely that such voluntary codes will stem the pressure for formal regulatory intervention.