The Central Bank has published its review of differential pricing practices in the private car and home insurance markets.

Differential pricing refers to the practice whereby insurers charge customers different premiums for reasons other than risk profile or cost of service.

The review was conducted through a market analysis of 11 insurance providers, a quantitative analysis of 11 million individual policy records and a survey of some 5,500 consumers.

The review primarily focussed on two forms of differential pricing practices - price walking and dual pricing.

Price walking occurs when customers are charged a ‘loyalty penalty’ over and above their risk profile and cost of service for remaining with the insurer for an extended length of time.

In Association with

Dual pricing refers to the closely related practice of treating the pricing of new business customers and renewal customers differently.

The review found that long-term customers pay on average 14% more on private car insurance and 32% more on home insurance than the equivalent customer renewing for the first time.

On the basis of these findings, the regulator is proposing new measures that it says will benefit consumers.

• Ban the practice of price walking in private car and home insurance.

• Require where new customers are offered a lower price to attract their business, it should be clearly disclosed to them that this includes a new business discount.

• Require private motor and home insurance providers to review their pricing policies every year to ensure they maintain focus on their pricing practices and the impact of such practices on their customers, while also ensuring adherence to new pricing provisions and the fair treatment of consumers.

• Introduce new requirements in relation to automatic renewals, which will include consumer consent for the automatic renewal of insurance contracts, to allow personal customers to make more informed decisions.

Unfair Practices

Director General, Financial Conduct, Derville Rowland (pictured) commented: “ While innovation in insurance provision offers the potential for improved products and services, it can also pose risks to consumers. Differential pricing is one such example, and in line with our mandate the Central Bank will intervene to guard against firms using practices that are unfair to consumers.

“On foot of our comprehensive Review, we are proposing a number of policy measures to strengthen the consumer protection framework and protect consumers from the stealth practice of price walking, which we consider unfair. However, we are conscious of the benefits that pricing practices can also provide. So our proposals are balanced to allow consumers retain the opportunity to avail of new business discounts to allow them to shop around for the best prices, while ensuring that those who remain with the same insurer are not unfairly hit by loyalty penalties.

“Our proposals will also set specific requirements on insurance providers to fully consider the impact of all decisions on their customers, putting their customers’ needs at the forefront of any policy decisions or changes to pricing practices.”

A public consultation process on these proposals will run until 22 October 2021, with the intention that the finalised new measures will apply to insurers from 1 July 2022.