Regulator could ban insurance ‘loyalty penalty’
The Financial Conduct Authority could ban insurers from moving policyholders on to more expensive policies when they renew deals, with a probe finding that around 6m customers were being overcharged by £1.2bn a year. The FCA found that customers who were initially offered “new business” discounts were regularly subject to rapid annual price increases, with the issue of “price walking” leading to criticism of the so-called “loyalty penalty”. Insurers were also accused of targeting “vulnerable” customers deemed less likely to shop around. “This market is not working well for all consumers,” said Christopher Woolard, executive director of strategy and competition at the watchdog. Rob James at Merian Global Investors has warned that “the only way that the price playing field can be levelled is for new customers to get a worse deal, which would allow existing customers to reap the benefits through a lower price,” adding that this “upsets the competition apple cart.” Peel Hunt analyst Andreas van Embden said the FCA “is taking a very balanced and considered approach. They are looking to make su re pricing is as transparent as possible without interfering in price mechanism insurers use.” With the regulator set to enter a six-week consultation period with insurers ahead of the release of its final report in the spring, Chris Chapman, a partner at law firm Mayer Brown, said the mooted changes were “a very significant regulatory development”.