New Central Bank rules on insurance loyalty from July 1
New rules aimed at ensuring motor and home insurance customers do not get penalised for their loyalty are to come into effect from July 1.
It means that from that date it will not be possible for insurers to charge any renewing customer a premium that is higher than they would have charged a consumer with a similar risk profile who is renewing their policy after the first year of having their policy with the same company.
It follows publication by the Central Bank of regulations banning the practice of so-called “price walking”, where customers are charged a loyalty penalty the longer they remain with an insurance provider.
The measures do not, however, go as far as those put in place in the UK market, where dual-pricing has been banned.
Dual-pricing is where new and renewing customers with a similar risk profile and cost of service are charged different premiums for reasons other than risk or cost of service.
The changes here will therefore not impact the ability of insurers to offer discounts to new customers.
“In our research we concluded that there was a value in switching and competition,” Derville Rowland, Director General of Financial Conduct at the Central Bank, said.
“So discounts can still be offered to new business customers in private motor and home insurance because we think there is a huge value in customers who wants to see better value and who takes the time to shop around,” she said.
“We intend that to continue,” she added.
The action by the regulator follows a long investigation by it into the dynamics of how differential pricing mechanisms are used in the insurance market.
It concluded that the practice of price-walking could result in unfair outcomes for some consumers in the motor and home insurance markets.
Customers who remained for more than nine years with an insurer for motor insurance ended up paying 15% more than someone with a similar risk profile, while in the home market they were paying 30% extra.
The regulations will also include changes to ensure customers get better information and reminders from their insurers, including the right to cancel, when they are signed up for automatic renewal.
Insurance firms and intermediaries will also have to carry out an annual review of motor and home insurance pricing policies and processes to ensure sound practices.
Ms Rowland said the Central Bank does expect to see better pricing for loyal customers.
But she could not say how much customers are typically likely to save as a result of the changes and warned that it could lead to a rebalancing of pricing models that might result in some discounts being reduced.
“How the market will operate into the future in terms of risk premia and pricing practices is something that will be under scrutiny as we move forward,” said Ms Rowland.
“But we will expect the frontline, the firms themselves to oversee their pricing practices, to make sure that they ban price walking and don’t allow it to come in through the back door in any other way.”
“We will have to see what impact this has on the market. It could be that it is a redistribution whereby loyal customers pay less but there is less discounts available or the pricing evens out over time,” she added.
The regulator also rejected claims that it had been slow to act on the issue, stating that Ireland is the first market in the EU where action is being taken to stamp out price-walking.
“I see it as a good day for consumer protection, and certainly we are leaders in that in Europe which of course is right and we will remain vigilant,” said Ms Rowland.
The regulations do not deal with the issue of whether automatic renewal should require an opt-in decision by customers or not.
The regulator is to take more time to consider that issue and will likely make a decision on it next year.
The Central Bank said it would conduct reviews of how the changes that are being implemented are impacting over time and will be monitoring their implementation.
Any breach would be a breach of the Consumer Protection Code, which could lead to a range of actions including Risk Mitigation Programmes, directions, conditions and enforcement actions.
Insurance Ireland says Central Bank move ‘sensible’
Insurance Ireland said today that it supports the approach taken by the Central Bank on price walking.
“It is important for consumers and the competition in the Irish market that insurers continue to deliver fair consumer outcomes through innovative products and services. The new regulation supports this objective,” Insurance Ireland’s chief executive Moyagh Murdock said.
The group said the Central Bank’s approach on the issue is “sensible” as it does not harm pro-competition practices, like discounts for new customers or risks that consumers end up without insurance cover.
“The new regulation presents a reasonable and pragmatic approach. Nonetheless, it will mean considerable efforts for insurers and external service providers to implement the new regulations in a short time,” Insurance Ireland said.
“Insurers will respond to this challenge and ensure that the quality of the services which insurers offer their customers remains at its high level and that positive outcomes for consumers are ensured,” it added.
Sinn Féin’s spokesperson on Finance Pearse Doherty has also welcomed the new regulations to ban price discrimination in the home and car insurance markets.
Mr Doherty said this “price gouging practice” involves insurance companies identifying loyal and vulnerable customers and then charging artificially high prices at renewal.
He noted a report by the Central Bank found that 2.5 million policyholders were paying a total of €187m more than the actual cost of their policies as a result of this practice.
“For many years I have campaigned to end this price gouging practice and put money back in consumers’ pockets – submitting a complaint to the Central Bank in October 2019 calling for this practice to be banned before introducing legislation to ban it in January 2021,” Pearse Doherty said.
“It is clear that the Central Bank responded and acted on that complaint,” he said.
He said the new regulations will increase transparency and result in fairer pricing for consumers.
But he added that the regulations must now be kept under review to ensure that insurers are following them to the letter and that they result in lower prices for consumers