COVER STORY THE FINTECH TIMES
FAREWELL DUAL PRICING
A NEW DAWN FOR INSURANCE For years there have been complaints about unfair pricing in the insurance industry but with reforms finally introduced at the start of this year, how will the industry evolve? The Fintech Times investigates
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t was back in 2018 when the Competition and Markets Authority began investigating concerns that people who stay with their insurance provider can end up paying significantly more than new customers, following a ‘supercomplaint’ from Citizens Advice. Then, in 2019, the UK’s financial regulator – the Financial Conduct Authority (FCA) – unveiled plans to crack down on dual pricing – also known as price walking – where insurance providers artificially lower their acquisition pricing to win new business then ramp up the prices at renewal time in order to try to recoup their acquisition losses and move to profit. Finally, at the start of this year, the FCA ushered in rule changes – part of the General Insurance Pricing Practices (GIPP) – so that premiums charged to all renewing home and private motor insurance customers by their insurance provider cannot be greater than the price they would charge to an equivalent new customer for the equivalent policy.
IMPACT ON INSURANCE PRICING
The Association of British Insurers (ABI), the voice of the UK’s insurance industry, believes that while these changes will likely lead to consumers paying higher prices if they currently
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benefit from significant new business discounts, the home and motor insurance markets should remain competitive. James Dalton, ABI’s director of general insurance policy, said: “We support these reforms, and are pleased that the FCA has acted to bring them in across the home and motor insurance markets. While the FCA recognises that these changes could lead to price rises for some who shop around regularly, all customers should get fairer outcomes in the UK’s competitive home and motor insurance markets.”
IMPROVED OFFERINGS
Durham-based insurtech startup Honcho, which offers a reverse auction marketplace platform, where consumers using Honcho’s iOS and Android apps ask car insurance providers to bid against each
other in real time to win their business, says it is ‘very pleased’ by with the work that the FCA has been doing. According to the company, as insurance providers move away from price as their sole selling point, meeting the needs of consumers via differentiated propositions should become the norm and will lead to a better overall experience. Gavin Sewell, CEO at Honcho, says: “Price comparison websites have been telling us for the last 15 years that the thing you need above all else in your product is the cheapest product. Now, as we all know, from purchases of fridges or televisions or whatever else it might be, the cheapest one isn't necessarily the best one or the one that gives you the cover that you need. “We recognised this as an issue and wanted to build a solution for customers that would try to help them find the best products at the best price. We built a system that not only asked for the data you would normally give to comparison websites but would take the customer on a journey to understand their needs better than they do today, highlighting the differences in cover so that if you do ever end up claiming, you essentially know what you're going to be covered for. “Some people still choose the cheapest, but 80
per cent of people go for a more informed choice. Insurers are going to have to start talking about why their product is better than someone else's, because the pricing differential is not going to be there anymore. You're not going to be able to subsidise those new policies in the same way.”
OFFERING VALUE
Cuvva, the car insurance app supporting more than half a million drivers, also believes insurance companies will need to truly offer value and treat customers fairly if they want to continue to retain customers and thrive in the future. Andy Tomlinson, COO at Cuvva, said: “Eradicating dual pricing is a positive leap forward both for customers and the industry. Customers will no longer be taken advantage of at renewal time, with their premiums doubling, which will help build much needed trust and loyalty in the sector, offering customers greater value and fairness longer term. “As insurance companies will have to offer existing customers the same price as new customers, it’s likely that in the short-term customers will see their premiums rise as insurers adjust their rates to levels that are sustainable at renewal time. In the long-term, customers will see big savings as they’ll no longer be punished at renewal time for staying loyal.”
