LONDON (Reuters) – Britain’s markets watchdog said it could stop participants in the 18 billion pound ($22 billion) car and home insurance market deploying practices that charge existing customers more than new policyholders.
The Financial Conduct Authority (FCA), in long-awaited interim conclusions from a study launched a year ago into how car and home insurers treat their customers, said on Friday that firms use complex pricing practices that allow them to raise prices for consumers that renew with them year on year, known as “price walking”.
Six million policyholders paid high prices in 2018, the watchdog said. If they had paid the average price for a policy, they would collectively have saved 1.2 billion pounds.
This includes 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 optimization based on consumers’ likelihood of renewing.”
Shares in Saga (), which offers insurance and travel to the over-50s, tumbled 10.6% after the watchdog announced its proposals, and Direct Line Insurance (), 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 being penalized,” said 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”.
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 written in 2018, and home and motor insurance generated 18 billion pounds in gross premiums last year. The FCA said 82% 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.
Source:: Daily times