The car insurance industry is to be investigated by the FCA (Financial Conduct Authority) in order to address their conduct over “hidden discrimination” in pricing practices that harm “vulnerable” consumers.
A discussion paper published by the FCA expresses concerns over firms charging different prices for the same product based on factors such as their postcode, marital or employment status. This is despite such customers costing no more for insurers to cover. Home insurance companies will also be investigated.
The paper also draws attention to loyalty pricing, a practice where existing customers are charged higher prices than new customers for the same insurance product.
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Figures from the FCA show insurers generated £78bn in premiums from customers last year, while 82 per cent of adults own some sort of general insurance product, with car insurance being one of the most common.
In the letter to the bosses of the UK’s insurance companies, FCA chief executive Andrew Bailey said: “I am writing to you to set the clear expectation that your firm should act now to address any issues from the findings in our report which apply to your firm.”
The FCA concedes that “the fact that some customers pay more than others, even though the cost of providing the product to them is the same, does not necessarily make price discrimination unfair.” Highlighting student discounts as an example of discrimination that has widespread acceptance, the FCA considers that loyalty pricing and price discrimination affecting vulnerable customers may, however, be unfair.
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Responding to the news, Hugh Savill, director of regulation at the ABI (Association of British Insurers), said: “While many customers benefit from competitive motor and home insurance markets with lower premiums, we agree that the market is not working as well as it should for some long-standing customers.
Savill called the issue “important”, adding: “insurers will work with the FCA to address issues raised in the report to ensure that the market works as well as possible for all consumers.”