The FCA has announced the findings of a general insurance market study which looked into pricing practices across home and car insurance. General insurance generates around £80bn in premiums for insurance companies, with home and motor insurance the most commonly held policies.
The FCA has identified a number of areas of concern, including insurance firms failing to have appropriate control of the pricing, differential pricing leading to some groups of consumers paying higher prices than other groups with similar risk profiles and price discrimination based on data from ‘protected’ characteristics (e.g. private data).
Initial research from the FCA found the greatest potential for consumer harm in pricing related to long term renewal customers. The FCA found that consumers who renewed home insurance with their insurer for many years are paying prices significantly above the cost of provision.
It also found that the those less affected in home insurance are those who shop around (they generate smaller margins for insurers). Those most affected are those who are over 65 years of age, who pay monthly and those who auto-renew (they generate larger margins for insurers).
It comes after Citizens Advice launched a super-complaint to the Competition and Markets Authority about excessive pricing. The full market study will be published later in the year, and will focus on pricing practices in home and motor insurance. These are two of the largest general insurance markets and these products are widely held across the UK population. Both use personalised pricing based on specific personal characteristics and history of consumers, and renewal pricing.
Other general insurance products such as health, pet and travel insurance are not included in the scope of the market study as they have different characteristics to home and motor insurance.
We look forward to specific action being taken as a result of the study. Specifically, we want to see the removal of the practice of auto-renewal across all financial services and insurance products. All contractual agreements, in our view, should state start date, end date, terms of cancellation and amounts being paid.