The Financial Conduct Authority in the UK has published an interim report of its market study into pricing of home and motor insurance. The FCA found that:
- Insurers often sell policies at a discount to new customers and increase premiums where customers renew, targeting increases at those less likely to switch.
- Longstanding customers pay more on average.
- One in three customers paying higher premiums did so despite lower financial capability.
- People who pay the higher premiums do not understand the implications.
- Prices are set taking into account whether a customer will switch or not which is not made clear to customers.
- Firms engage in practices that raise barriers to switching.
- Many customers who do switch or negotiate their premium get a good deal.
The FCA is considering these remedies:
- Ban or restrict price-raising for renewing customers or requiring insurers to move customers to a cheaper equivalent deal.
- Stop practices that discourage switching including automatic renewal practices.
- Transparency in publishing information about price differentials to customers.
South African insurers should look at these aspects. The FSCA has the power to regulate premiums and that would have consequences for the prudential requirements of insurers.