The UK’s financial regulator is to launch a probe into how car insurance policies are priced and how providers treat their customers.
The Financial Conduct Authority (FCA) has said it is concerned that current practices have the potential to “harm” customers, particularly those who are vulnerable.
Consumer bodies have previously raised concerns that customers are being “ripped off” by insurers who increase premiums year-on-year, meaning customers pay more and more for the same level of cover.
Recent research estimated that drivers are spending nearly £300 a year more than they need to by falling victim to so-called price walking rather than shopping around for cheaper insurance.
Fair prices
The FCA says the study aims to ensure insurers deliver “competitive and fair prices” for consumers.
Andrew Bailey, the FCA’s chief executive, commented: “Our initial work has identified a number of areas of potential consumer harm. We want to make sure that general insurance markets deliver competitive and fair prices for all consumers. This market study will help us examine the outcomes from general insurance pricing practices and inform how, if necessary, we should intervene to improve the market.
“If change is needed to make the market work well for consumers, we will consider all possible remedies to achieve this.”
Exploiting customers
The move has been welcomed by industry observers, who accused insurers of exploiting loyal customers.
Gareth Shaw, Which? Money Expert, said: “This review is long overdue. For years, loyal policyholders have been exploited by insurance providers, punished by excessive premiums, and have had to battle with unclear pricing that makes it difficult for people to understand whether or not they’re getting a fair deal.
“It’s right that the regulator tackles this sector to ensure customers aren’t punished for their loyalty and that pricing is clear and transparent across the industry.”
Tom Flack, Editor-in-Chief at MoneySuperMarket, commented: “We welcome anything that reduces prices for long-suffering customers who have been penalised by staying with the same provider. It’s an issue that has been prevalent in the insurance market for years and needs to be addressed sooner rather than later.
“But there’s no ‘one size fits all’ approach and even if any new measures were embraced enthusiastically by insurers, it would not bring down bills overnight. People shouldn’t get lulled into a false sense of security that this is some sort of silver bullet.”
However, Ian Hughes, chief executive of Consumer Intelligence, warned against a heavy-handed approach.
He said: “We’re glad the regulator has stepped up to help wean customers and insurers off dual pricing, but fear a heavy-handed approach may hurt consumers more. A measured approach to fixing the problem is definitely the way to go.
“It is also important to note that pricing is not the only factor that customers consider. As our research into retention and renewal shows, factors like trust and receiving good service have a big as an influence as price when consumers consider whether to renew their policy or change providers.”
