Monday, 21 October, 2019

Stop penalizing loyal customers, UK regulator tells car and home insurers

Six million insurance customers are being hit by 'loyalty penalty' Home & car insurance REVAMP: Loyal customers to be given SAME deals as new amid FTA probe
Russell Knight | 07 October, 2019, 13:09

It said that while a large number of people shop around, many loyal customers are not getting a good deal.

The Financial Conduct Authority (FCA) estimates that around six million policyholders pay unnecessarily high prices.

Customers who stay loyal to their mobile, broadband or insurance providers are paying as much as £1,000 a year more than serial switchers - costing them a total £4.1bn more - according to research from the charity Citizens Advice, which filed a "supercomplaint" last year, prompting the CMA to launch an investigation.

Therefore the FCA is considering various remedies such as banning what it calls "margin optimisation" based on the likelihood of a customer renewing; making insurers automatically switch customers who are paying high prices to lower-priced products that provide the same cover when they renew; and making insurers give customers information about alternative deals as well as identifying those who might need help moving to better-priced products which provide the same level of cover.

The FCA said it found that the "home and motor insurance markets are not working well for all consumers".

Jane Portas, Insurance Partner, PwC, also stated: "The FCA has concluded 6m consumers in the general insurance market are getting a raw deal, a third of which are vulnerable customers". We believe this affects around six million consumers.

The FCA set out a series of potential changes for insurers to remedy the situation and "ensure markets are truly competitive". "We expect the industry to work with us as we do so".

It intends to publish a final report and consultation on remedies in Q1 2020.

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When setting a price, most firms include their expectations of whether a customer will switch or pay an increased price.

Central to the FCA's study is the insurance industry's ongoing exploitation of existing customers for the benefit of new customers.

These included selling policies at a discount to new customers before increasing premiums when policies are renewed and raising barriers to hinder customers from switching to other providers.

"As the FCA's paper states, consumers tend to focus on the initial price of an insurance contract, rather than renewal prices".

The Financial Conduct Authority (FCA) gave its long-awaited interim conclusions yesterday from a study launched a year ago into how auto and home insurers treat their customers. For consumers who bought combined contents and building insurance, lower income consumers - below £30,000 - pay higher margins than those with higher incomes.

"They are also more likely to pay for their insurance in instalments so could be losing out twice - first by not shopping around and secondly from the interest rate charged on their insurance".

Huw Evans, director general of the Association of British Insurers, 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 consumers". "The primary way insurers secure customers via comparison websites is via new customers-only pricing. Using AI to determine all the possible actions that could be taken with an individual customer, and what curated deals could be offered to them - at the right time, in the right context - insurance companies will be able to dramatically reduce their customer churn, also taking pressure off their sales teams".

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