Home Insurance City watchdog weighs new rules on insurance pricing

City watchdog weighs new rules on insurance pricing

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The City watchdog may impose new rules on how insurers price home and motor insurance after finding that home insurers failed to ensure fair deals for customers and were at risk of practising racial discrimination.

The Financial Conduct Authority said on Wednesday it had found “a number of areas of potential consumer harm” in how home insurance is priced, and suspected some firms were failing to comply with existing rules on transparency in insurance renewals.

The watchdog on Wednesday set out its plans for a broader market study on insurance pricing, saying it would look at whether vulnerable consumers are charged especially high prices, whether firms are clear about pricing when people renew insurance deals, and how prices affect competition in the sector. 

It said it would look at solutions including limiting auto-renewal of insurance and limiting differences in pricing between different groups of consumers. 

Andrew Bailey, the FCA’s chief executive, 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 . . . 

“If change is needed to make the market work well for consumers, we will consider all possible remedies to achieve this.” 

In a report into home insurance ahead of the broader study, the FCA found that firms were failing to oversee pricing to the extent that they could not assess whether customers were being treated fairly. 

It found that loyal customers were charged far more than those who shopped around, and that the use of data to set pricing left firms open to the possibility of racial discrimination in their pricing strategies. 

The FCA said it had not found direct evidence of such discrimination but “our main concern in this area is the potential use of data based on race/ethnicity within firms’ pricing models to produce different offered prices”. 

The FCA’s study will take place at the same time as an investigation by the Competition and Markets Authority into complaints of higher charges levied on consumers who stay loyal to providers of insurance and other services. 

That investigation was launched following a “super complaint” in September by Citizens Advice, which said people were paying more than £4bn a year extra for staying with the same providers of mortgages, savings, mobile phones, broadband and home insurance. 

Earlier research from the FCA found that people who had been with the same house insurer for five years paid 70 per cent more than new customers. 

Insurers launched an action plan earlier this year which they said would “help tackle excessive premium differences between long standing and new customers”. But that did not prevent the FCA, which also has antitrust powers for the financial sector, from launching a full-blown market study.

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