Six million insurance holders 'not getting a good deal'
Around six million policyholders pay high prices and are not getting a good deal on their insurance, the financial watchdog has said.
The Financial Conduct Authority (FCA) published the findings alongside an interim report into the pricing of home and motor insurance.
It said that it was considering solutions to improve the market, which could include banning or restricting raising prices for loyal customers who renew year-on-year, or requiring firms to automatically move customers to cheaper equivalent deals.
And it added that if the six million people that weren't getting a good deal paid the average price for their risk, they could save around £1.2 billion a year.
What has the FCA found?
The regulator found:
- Insurers often sell policies at a discount to new customers and increase premiums when customers renew, targeting increases at those less likely to switch.
- Long-standing customers pay more on average, but even some people who switch pay higher prices.
- A third of consumers who paid high premiums showed at least one characteristic of vulnerability, such as having lower financial capability. For consumers who bought combined contents and building insurance, those who earn less than £30,000 pay higher margins than those with higher incomes.
- People who pay high premiums are less likely to understand insurance or the impact that renewing has on their premium.
- When setting a price, most firms include their expectations of whether a customer will switch or pay an increased price. This is not made clear to the customer.
- Firms engage in a range of practices to raise barriers to switching.
- Many who switch or negotiate their premium can get a good deal.
What will the FCA do to fix the situation?
The FCA's report is only an interim document, and it says it will publish further findings next year. It is looking at how to:
- Tackle high premiums – this could include banning or restricting practices such as raising prices for customers who renew year-on-year, or requiring firms to automatically move consumers to cheaper equivalent deals.
- Stop practices that could discourage switching – including restricting the way that firms use automatic renewal.
- Make firms be clear and transparent in their dealings with customers – including considering whether firms should publish information about price differentials between their customers.
- Harness the benefits of innovation in the longer-term – so that general insurance markets benefit from technological developments.