UK may stop insurers from penalising loyal clients

LONDON • Britain's market watchdog said it could stop participants in the £18 billion (S$30.5 billion) car and home insurance market from deploying practices that charge existing customers more than new policyholders.

The Financial Conduct Authority (FCA) gave its long-awaited interim conclusions yesterday from a study launched a year ago into how car and home insurers treat their customers. It said that firms use complex pricing practices that allow them to raise prices for consumers who renew with them year on year, known as "price walking".

Six million policyholders paid high prices last year, the watchdog said. If they had paid the average price for a policy, they would collectively have saved £1.2 billion.

They include one in three people whose financial position is potentially vulnerable.

"The options we are considering include limiting pricing practices that allow firms to charge higher prices to consumers who do not switch, for example, restricting or banning margin optimisation based on consumers' likelihood of renewing."

Saga, which offers insurance and travel services to the over-50s, saw its shares tumble 10.6 per cent after the watchdog announced its proposals. Share prices of insurance companies Direct Line, Admiral, RSA and Hastings also dropped.

"At the moment, these are just proposals. The FCA must now follow through on these bold ideas to stop loyal insurance customers from being penalised," said Ms Gillian Guy, chief executive of consumer group Citizens Advice.

Citi analysts said the report was "frustratingly light on actual suggestions and is more of a rehash of the options... available".

The Financial Conduct Authority (FCA) gave its long-awaited interim conclusions yesterday from a study launched a year ago into how car and home insurers treat their customers. It said that firms use complex pricing practices that allow them to raise prices for consumers who renew with them year on year, known as "price walking".

JPMorgan Cazenove analysts said the FCA scrutiny would "act as an overhang" on general insurers, highlighting Direct Line, Saga and Admiral as most at risk.

The Association of British Insurers said it agreed that home and motor insurance markets could work better for customers who do not shop around at renewal, and that it would work with the regulator on the issue.

Insurers have already been drawing up new policies on how to deal with vulnerable customers, one industry source said.

"Industry has acknowledged the need to tackle concerns about pricing practices and has been taking some steps to do this," the FCA said. "However, we think that FCA intervention is also likely to be required."

More than 45 million home and motor insurance policies were underwritten last year. In the same year, home and motor insurance generated £18 billion in gross premiums. The FCA said 82 per cent of adults in Britain have at least one general insurance policy.

It plans to publish a final report and consultation on remedies in the first quarter of next year.

REUTERS

A version of this article appeared in the print edition of The Straits Times on October 05, 2019, with the headline 'UK may stop insurers from penalising loyal clients'. Print Edition | Subscribe