A report by the FCA (UK Financial Conduct Authority) has raised some grave concerns around the business practices of motor vehicle and home insurance providers.
The report revealed that many insurance business practices were hurting consumers with 1 in 3 targetted with higher prices due to at least one “characteristic of vulnerability”.
This worrying report highlighted some widely known “tricks” which insurancers use to maximise prices and therefore profits.
The report makes for some great reading, see below for some facts that certainly caught my eye.
Attracting new customers costs all customers.
The report estimates that £2.3bn is spent each year attracting new customers. These costs are reflected in higher prices for all customers, not just new ones. Yes, you’re paying for that glossy ad featuring a charismatic small carnivoran from the mongoose family.
New Customers savings / auto-renewals
New customers are often provided insurance at below “cost” price with the hope that the insurer will recoup that loss in the renewal process. They target those customers who are less likely to switch, maximising profits from “vulnerable” customers that may not have an understanding of the insurance prodcust and/or the cost-benefit of switching providers.
Insurance isn’t the breadwinner
Contratarty to what I have always understood, the report claims that insurance firms earn profits primarily from “from activities other than underwriting, such as addons, premium finance, fees and charges or investment income.” In other words: That £20 for making a minor change to your policy or the motor legal protection you’ll never need.
What can be done?
The FCA’s report suggests some “remedies” that could see some of these questionable business practices outlawed. These include:
- A ban or restriction in the use of policy auto-renewals.
- Making auto-renewals opt-in only.
- Forcing insurers to automatically switch customers to the lower prices products offering equivalent cover.
- Requiring insurers to be transparent about their pricing strategies and the reasons for
The report has already caused quite a stir in the insurance market with share prices of at least 2 major insurance providers taking a dip after the report was published.
Great news for motorists
Whilst the report may be concerning, it highlights some very valid points and reveals some pretty dubious business practices that I certainly wasn’t aware of. The targetting of those deemed to be “vulnerable” to accepting higher prices at auto-renewal seems a little immoral if you ask me. The FCA’s plans on how to remedy this is a positive way forward to ensuring fairer pricing for all.
I for one look forward to the day that I actually stick with an insurer for more than a year at a time to get the best deal. Is that really too much to ask?
Read the full report on the FCA website
Let’s hear from you!
What are your experiences with insurance prices / auto renewals. Does the FCA go far enough to help stop this? Let us know in the comments below