Walking Away From Loyalty Penalties – the End for Differential Pricing?

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Walking Away From Loyalty Penalties – the End for Differential Pricing?In its review of differential pricing (Review), the Central Bank of Ireland (CBI) has proposed that the practice of "price walking", whereby customers are in effect penalised for not walking away from their insurer after a year of coverage, is abolished.

What is differential pricing?

Differential pricing involves two customers being offered different premium prices for reasons other than risk or cost to the insurer. As noted by the CBI repeatedly in the recent past, this practice causes harm to consumers, particularly those consumers who do not wish to switch insurance providers.

How much am I paying?

The Review found that customers who remained with their insurer for nine years or more were paying 14% more for car insurance and 32% more for home insurance versus a new customer.

What is the CBI proposing?

The Review proposes that:

  • the practice of price walking is banned i.e. that a renewing customer cannot be charged more than an equivalent new customer,
  • where a new customer is offered a lower price, it must be made clear to them that they are receiving a "new business discount". This puts the customer on notice that their premium may increase,
  • private motor and home insurance policies are reviewed annually to ensure they have appropriate pricing, and
  • customers must consent to automatic renewals, and it is not a matter for the insurer to decide.

As an Insurer, what must I do?

Insurers in the motor and home insurance sector must now review:

  • pricing practices: to ensure that new customers are not being unfairly preferred to the detriment of renewing customers,
  • disclosures: to ensure that new customers are aware that lower prices are only as a result of a "new business discount",
  • policy wordings: to require the consent of the customer to have their policy automatically renewed.

For a more comprehensive overview of the CBI's actions to-date regarding differential pricing, please see our December 2020 Briefing on Differential Pricing in the Irish Insurance Market.

By James Grogan of William Fry