knowledge | 16 December 2020 |
Insurance – Central Bank Publishes Interim Report on Differential Pricing Practices
The Central Bank of Ireland has published an Interim Report in the context of its on-going review of differential pricing practices in the Irish Private Car and Home Insurance Markets (the “Review”). The Interim Report (here) provides a progress update on the Review and outlines new insights from the Central Bank’s on-going market analysis and consumer research.
Market Analysis Insights
According to the Central Bank, to date its market analysis shows that the majority of firms apply some form of differential pricing. Moreover there are a number of pricing practices evident across the private car and home insurance market that lead to customers with a similar risk and cost of service paying different premiums.
Generally, the Central Bank was of the view that Firms were also unable to demonstrate consideration of how pricing practices may impact certain groups of consumers differently. Moreover, it observed that renewing customers tend to pay significantly more, while new business customers pay marginally less, than the expected cost of the policy. According to the Central Bank, on average, the longer a customer remains with their insurer, the higher the amount they pay in excess of that required to cover the expected cost of the policy.
Consumer Research Insights
According to the Interim Report, while consumers are aware of the legal requirements associated with insurance they do not see it as a discretionary purchase leading to it being considered in largely negative terms – which the Central Bank perceives to result in a lack of trust and lack of interest.
In addition, the Central Bank expressed the view that the fact that most consumers have a limited knowledge of how the specifics of insurance operates can discourage more active involvement and lead consumers to feel it is better and easier to stay with the current insurance provider rather than switch. According to the Central Bank’s research, consumers have a clear preference for staying with an existing insurance provider and many consumers report that they compare prices largely because it helps to negotiate a better price with their current provider, rather than to switch provider.
The Central Bank also observed that the level of consumer inertia differs across products with consumers tending to involve themselves more in private car insurance than home insurance.
As previously outlined by the Central Bank, the Review is being conducted in three stages, with stage 2 currently underway. The Central Bank intends to conduct further intensive data analysis to test the factors that are most important in driving differential pricing and will publish a report and/or a consultation on proposals for reform, as appropriate, in 2021.
In the meantime, the Central Bank intends to continue to focus on ensuring that the concerns arising from Phase 1 of the Review are addressed. In this respect, the Central Bank requires insurance providers to address issues relating to governance and oversight of their differential pricing practices, to ensure that they understand the impact of such practices on their customers and that they have a fully embedded Consumer Protection Risk Management Frameworks to drive positive behaviors.
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.