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'Long-term insurance customers penalised'

The Central Bank is proposing a ban on ‘price-walking’, after carrying out a review of the car and home-insurance markets.

The regulator says banning the practice would remove a ‘loyalty penalty’ imposed on customers who stay with the same insurance provider for a number of years.

The move would mean that insurers could not charge customers, who are on their second or subsequent renewal, a premium higher than they would charge a year-one renewal customer with similar risk and cost of service.

The regulator is not proposing, however, to stop insurers from offering discounts for new business.

Long-term customers pay more

The Central Bank’s review found that long-term customers of insurers were paying, on average, 14% more for car insurance and 32% more for home insurance than the equivalent customer renewing for the first time.

The review also examined other aspects of differential pricing — where customers are charged different premiums for reasons other than their risk or the cost of covering them.

“While differential pricing can benefit consumers who are more likely to shop around for better prices, it can cause harm to consumers, particularly if it is used to increase prices by stealth,” the regulator said.

Four key proposals

The main proposals resulting from the Central Bank’s review will now be subject to a public consultation process, which will run until 22 October. They are:

• A ban on the practice of price-walking in private car and home insurance,
• 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,
• Motor and home insurance providers must review their pricing policies every year to ensure they are treating consumers fairly,
• New requirements on automatic renewals, which will include consumer consent for the automatic renewal of insurance contracts, in order to allow personal customers to make more informed decisions.

“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,” said Derville Rowland (Director General, Financial Conduct, pictured).