The Financial Conduct Authority (FCA) today launched a probe into pricing practices in the insurance market.
The regulator is concerned about potential consumer harm, particularly the impact of industry pricing practices on vulnerable people, where some groups of people face far higher prices than other groups.
It will also examine the fairness of pricing and the impact of pricing practices on competition in the insurance industry.
An initial study of home insurance recently conducted by the FCA found issues such as a lack of clear pricing strategies, a lack of transparency and poor governance and pricing controls.
FCA chief executive Andrew Bailey said:
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.
The FCA’s market study will investigate how companies charge customers under home and motor insurance policies, with 82 per cent of British adults holding one or more such policies.
Firstly the FCA will seek to address conduct by firms, after its initial home insurance study found that pricing was based on protected personal data and that differential pricing leading to some groups of consumers paying significantly higher prices than others deemed less of a risk.
Tom Flack, editor-in-chief at Money Super Market, welcomed the news, saying consumers are penalised with high prices for staying loyal to one provider.
“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,” he added.
“Shopping around using a price comparison site at the point of renewal is essential if customers want to be sure they’re getting the cheapest deal.”
Gareth Shaw, Which? money expert, added: “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.
“Customers who prefer to stay with one provider are at risk of being hit with vastly overpriced premiums when little has changed in the service they receive. 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.”
The regulator has invited input into the market study by 3 December, before it publishes an interim report next summer setting out potential remedies, with a final report coming by the end of next year.
Alongside the market study, the FCA has published a paper on fair pricing in financial services, which it is inviting evidence for by 31 January 2019.