braced for "loyalty penalty" crackdown|
A most interesting
article in the Financial Times today - see our report alongside. See our earlier
NEWS items on the "loyal stuffee" topic. More
from the V8 Webmaster
Insurers have openly said that customers who shop
around can get better deals - suggesting the market is competitive and providing
lower priced cover for those customers who check offers in the marketplace. But
those customers are consumers who accept that an annual shopping expedition is
an essential activity if they are going to get a good deal on their renewal. But
the insurers comments we have seen imply that those customers who can't be bothered
to get off their backsides and shop around, miss an opportunity for a better deal.
But that seems little more than the insurers' brazen unspoken acceptance of their
taking advantage of customers who do not - or the insurers' "loyal stuffees"!
surprising comment in the FT article mentioned alongside was "insurers are
keen for the regulator to look at the whole market - not just the loyal
customers who pay more, but also the new customers who shop around and benefit
from discounting. An insurer said "we are very supportive of anything that
drives transparency and switching behaviour". That seems to underline the
acceptance of switching or "churning" as the way the industry will continue
Will the regulators' measures really crackdown on the exploitation
of "loyal stuffees"! We will have to wait and see.
data" - current usage of the term tends to refer to the use of predictive
analytics, user behaviour analytics, or certain other advanced data analytics
methods that extract value from data for use in adapting business models.
walking" - see a BBC article available online. More
braced for "loyalty penalty" crackdown
was the headline for an article in the Financial Times today which reported the
"industry's pricing practices face reform while the cost of car and home
claims has risen".
The article notes "the way
insurers decide what to charge loyal customers for home and motor cover is set
for a shakeup this year as regulators complete an investigation into the industry's
pricing practices". |
The FT article continues with "the outcome
of a study by the Financial Conduct Authority (FCA) could force many of
the country's biggest insurers to tear up their business models and stop the widely
disliked practice of overcharging loyal customers to fund discounts for newcomers.
The FCA is not the only watchdog to take an interest in the so-called loyalty
penalty that costs consumers £4bn a year in excess charges for financial
services, broadband and mobile phones". Duncan Minty, an advisor on insurance
ethics, said "the Government, the Competition and Markets Authority (CMA),
the FCA and civil society are all saying the same thing - pricing practices have
severely damaged trust in insurers".
FCA probe comes at a difficult
time for the insurance industry
The FT article adds "prices for motor
insurance have been falling since the middle of 2017 after Government legislated
to cut the cost of payouts for personal injury claims caused by car accidents.
Home insurance insurance prices peaked in the middle of 2018, but competition
has been growing. At the same time, claims costs have been rising. Cars, now filled
to the brim with electronics, are more expensive to repair than they used to be.
The weakness of Sterling makes imported car parts for repairs more costly. The
consultancy EY expects both motor and home insurance industries to be loss making
at underwriting levels in 2019. Against this backdrop, insurers will have to respond
to the FCA's probe into how they decide what to charge their customers, whether
those methods are fair and the impact their decisions have on customers".
Duncan Minty feels the regulator should widen
the investigation "as it would be shortsighted if they didn't. They may decide
to fix the problem now but they should look at emerging trends", adding,
"one of those trends was price optimisation, or using big data
to work out exactly how much a customer was prepared to pay for cover. These practices
are banned in some US states". Matthew Upton of Citizens Advice said regulators
should focus on "price walking" - "gradually increasing the
price of cover every year. "The average home insurance customer who has
been with the same insurance company for five years is paying 69% more than a
Price regulation could damage a competitive
Duncan Urwin said the "FCA would stop short of outright price
controls. If you start being a price regulator, you risk damaging the competitive
nature of the market". Interestingly the chief executive of a leading insurer
commented "the right outcome would be remedies that shine a light on which
customers are being taken advantage of, and force management teams to address
that. What's particularly important is insurers can still compete for new business".
But surely the reality is one insurer's "new business" is another
insurer's former customer who is prepared to shop around in the market place.