The majority of insurance companies in Ireland are applying some form of differential pricing when issuing quotes for customers, a Central Bank review has found.
Differential pricing, also called “dual pricing”, is the practice of quoting two different price points for the same product or service in “different markets.” These “different markets” could be new versus existing customers, or telephone versus online channels.
The interim review, published Monday, found the practice has led to people of a similar risk paying different insurance premiums.
Dual pricing is evident across the car and home insurance markets, where renewing customers are paying significantly more than new customers of similar risk in what has been described as a “loyalty penalty”.
After analysing consumer trends, the regulator found people tend to show a preference for remaining with their existing insurer and have a limited understanding of how insurance works.
The Central Bank is set to publish its final report into the issue next year.
Kneejerk reactions
The Minister for Finance, Paschal Donohoe, has welcomed the interim report but cautioned against “kneejerk” reactions.
“Publication of this report is an important element of the Government’s commitment to insurance reform,” Minister Donohoe said.
“While a number of emerging issues are being brought to light in this report, it is important that we let the Central Bank complete its work before deciding how best to proceed.
“I would therefore caution against making kneejerk decisions based solely on this interim report, as to do so may have unintended consequences.”
The Minister of State with responsibility for Financial Services and Insurance, Seán Fleming, said he will be meeting with Insurance Ireland tomorrow and will press the need for insurers to “treat their customers with both fairness and respect.”
He added the new office for insurance competition will also meet for the first time tomorrow.
Both ministers said that differential pricing can be associated with both “benefits and costs” for consumers.
They reminded of the need for the insurance industry to treat their customers “fairly and in line with the Central Bank Consumer Protection Code.”
[It] raises questions as to how such providers can be deemed to be complying with their Consumer Protection Code obligations
Brokers Ireland, which represents 1,225 broker firms, said there is “clear evidence” in the data collected for the review that consumers are being “punished for loyalty”.
“The study has found that on average, the longer a customer stays with an insurer, the higher the amount they pay in excess of that required to cover the expected cost of the policy,” Cathie Shannon, Director of General Insurance at Brokers Ireland said.
“In one case study in relation to home insurance, the average premium charged in 2019 was 29 per cent higher for renewal business than for new business, despite the expected cost of renewal business being six per cent lower than new business.
“The Central Bank’s Consumer Protection Code stipulates that insurance providers must treat their customers fairly,” she added.
“The reported failure by some providers to ensure that customers are at the centre of pricing decisions certainly raises questions as to how such providers can be deemed to be complying with their Consumer Protection Code obligations.”
