Twenty months into a new home and motor insurance pricing regime, it is hard to find anyone – apart from the regulator – who believes it has been a runaway success story.
Designed to end the despicable practice of overcharging existing customers for insurance that new policyholders can obtain cheaper, the jury is still out on whether the Financial Conduct Authority’s (FCA) new rules have marked a half of difference.
As far as consumers are concerned, the only thing they know for sure is that their renewal premium is significantly higher than what they were paying. In many cases, 30, 50 or even 100 percent more.
Staying loyal is still unprofitable, regardless of whether your exorbitant renewal premium is the same as a new customer would pay for identical coverage.
Shopping around is still the best way to get a more affordable deal.
Price increases: The new regime, introduced twenty months ago, to prevent existing customers being overcharged compared to new ones has failed to overcome skyrocketing renewal premiums.
However, there are encouraging signs that the FCA is starting to tighten the proverbial screw on insurers.
While the regulator can do little to stop insurers from passing on rising claims costs to customers through higher premiums, it is beginning to clamp down on companies that continue to penalize loyal customers.
Earlier this month, the FCA confirmed it had found Direct Line Group guilty of charging some existing home and car customers more for their renovation than they would have paid as new customers.
Under a “voluntary” agreement reached between them, Direct Line Group, which also owns big insurance brands such as Churchill (the Nodding Dog) and Privilege, said it would pay £30 million to those customers who were charged more than what is due for coverage. has been.
“An error in the application of these rules has caused our calculation of the equivalent price of new operations for some clients to not comply with the regulations,” the insurer said when announcing the details on the stock exchange.
Given that the announcement was made on the first day of this month (and that the new rules have been in force since early last year), one might rightly wonder why it has taken so long for the regulator to act.
However, in the regulator’s defense (and I am no defender of the FCA), the new pricing regime has taken a while to settle.
Although it has received a large amount of market information from consumers and the press about possible violations of the rules, the regulator’s main resource is the detailed annual statements provided by insurance companies in April this year.
From these statements, which detail the prices that individual insurers have been charging new and existing customers throughout 2022, the FCA can determine whether an insurer has consistently and significantly breached the new rules.
That provided ammunition for the FCA to start talking to Direct Line, culminating in the insurer agreeing to the £30m settlement to compensate disadvantaged customers.
Although the regulator had within its arsenal the right to take enforcement action against Direct Line (possibly resulting in the issuance of a multimillion-dollar fine and suspension from conducting new business), it chose a quicker course of action.
Compensation: Direct Line Group – has said it will pay £30m to those customers who were charged more for cover than they should have paid.
By reaching a voluntary agreement with the insurer (rather than getting bogged down in confusing and lengthy enforcement actions), it meant that the FCA could send an early message (on a regulator’s time horizon) to the insurance industry and the public in general statement that any violation of the rules would not be tolerated.
While the regulator is keeping its letters secret, it is understood that its ongoing examination of the annual returns of some other big insurers will prompt similar voluntary agreements to be signed and compensation paid to disadvantaged policyholders.
Details of these deals are likely to be released in the coming weeks and months.
If this happens, it will show that the regulator is not as useless as some people think. The regulator’s work is also believed to have revealed other areas of potential harm to policyholders.
For example, under current pricing rules, existing policyholders can sometimes get cheaper (but identical) coverage from their insurer at renewal time by purchasing through a different sales channel as a new customer: the Internet instead of the telephone.
Although this price differentiation between the different sales channels of an insurer is currently allowed by the new regulations, many customers say that it goes against the objectives of the current regulations.
The FCA seems to disagree, but is concerned whether insurers are applying these price differentials fairly and not using them as a tool to force customers to buy policies that are cheaper for them to manage.
Two years ago, the FCA confidently boasted that its measures to extinguish loyal customer penalties would save consumers £4.2bn in the first ten years.
Although the regulator can now claim that the insurance market is a little fairer thanks to his intervention, any talk of “savings” is a fairy tale.
Insurance premium inflation is currently rampant and will not decline until next spring at the earliest.
It has wiped out the savings the FCA promised.
Insurers are determined to rebuild their profits, and that can only be achieved at the expense of policyholders through higher premiums and a tougher claims stance (Direct Line has also drawn the regulator’s ire for this due to paying less to some customers whose cars were written off). off).
Of course, the regulator must continue to criticize those who break the rules. If he were a punter, he’d put a tenner in the name of the next insurer who will be asked to pay compensation (let me know who you think she is and I’ll reciprocate).
But despite all the FCA meddling, the insurance market remains as dysfunctional as ever. Customer loyalty counts for absolutely nothing.
Shopping is the only way to play the market.
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