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FCA criticises insurance premium pricing | Which? News

The Financial Conduct Authority (FCA) has published a scathing report on home insurers’ pricing practices – highlighting serious concerns about whether consumers are being fairly treated.

As a preliminary step to a broader insurance investigation, the government watchdog has reviewed the approaches to pricing and storage of customer data of 18 home insurance firms, representing around 40% of the UK home insurance market.

The FCA reported three key areas presenting ‘the most potential for significant harm and poor outcomes for consumers.’ These were:

  • Problems caused by ‘differential’ or ‘dual’ pricing – the practice of charging customers with the same or very similar risk characteristics different prices for the same product. One example of this is charging new customers different rates to existing ones. The FCA’s research found some groups of consumers pay significantly higher prices than other groups with similar risks and costs.
  • Firms failing to have appropriate and effective strategies, governance, control and oversight of their pricing practices and activities, such that they are unable to reliably assess and evidence whether they are treating their customers fairly.
  • The risk of discriminating against consumers through using rating factors in pricing based (directly or indirectly) on data (including third party data) relating to or derived from protected characteristics.

Who is worst off from home insurance pricing?
Price data analysed as part of the study revealed ‘widespread evidence’ of differential pricing within home insurance, meaning customers who’d stayed with their insurer for many years paid significantly higher margins (the price you pay above what it actually costs to cover you), on average, than newer customers.

According to the report, groups likely to be disadvantaged included over-65s, people paying monthly rather than annually, auto-renewing customers, those who’d made previous claims and those who had buildings-only insurance.

Meanwhile, customers likely to benefit from differential pricing were those who shopped around regularly. Private renters with children, customers with low credit scores, unemployed renters and those with contents-only insurance were often part of this group.

The longer customers have been with their insurer, the higher the margin, on average. The chart below shows the average margin (proportion of their premium above cost) paid compared with the number of times the policyholders had renewed with their insurer.

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FCA criticises insurance premium pricing – Which? News.

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