Central Bank confirms the use of dual pricing by insurers in Ireland
Rob Flynn
Staff Writer

With the penultimate stage of its review process into dual pricing finished, the Central Bank plans to publish its final review and recommendations sometime in 2021.

Earlier in the year we delved into the world of the Irish insurance market to take a closer look at what was happening with dual pricing and the implications for Irish consumers.

In our article we noted that the Central Bank of Ireland (CBI) was yet to publish the findings from the second phase of its three-stage review into differential pricing.

However, this week the Central Bank published its second of three reports into dual pricing or differential pricing in the Irish car and home insurance markets, and it made for some interesting reading.

The report confirmed that the majority of insurance providers apply some form of differential pricing for new and existing customers, if that was ever in doubt!

In this article we take a look at the report in detail and what the next steps are toward any meaningful change for insurance customers here.

What the interim report had to say

The Central Bank’s interim report into dual pricing has found that the majority of insurance companies in Ireland have been using dual pricing practices which means many customers have been paying more than they should each year.

The report makes up the second phase of the Central Bank’s review into differential pricing and provides new insights from ongoing market analysis as well as consumer research across the private car and home insurance markets.

Market analysis undertaken by the regulator identified a number of pricing practices used by insurers that led to customers with similar risk and cost of service profiles paying different premiums, and for reasons other than risk and cost of service.

Furthermore, the analysis highlighted a vast difference in what new and renewing customers pay relative to what they should be paying, while those customers who have been with the same insurer for the longest time have been shown to be paying the most.

In other words, many customers have been targeted by this adverse differential pricing strategy, paying what's known as a 'loyalty premium' for staying with the same insurance provider indefinitely.

Protecting consumers

Director General of Financial Conduct at the Central Bank of Ireland, Derville Rowland said:

We are undertaking a deep-rooted and forensic review of differential pricing practices in line with our mandate to ensure that the best interests of consumers are protected. This Interim Report summarises our initial observations, and these will help inform the next phases of our work.

Along with our market analysis of the insurance providers’ practices, it was important that our Review included consumers’ voices and experiences, so we engaged directly with consumers to ensure that their voices inform our work. As differential pricing can be associated with some benefits for consumers, as well as costs, these insights will be essential to our overall analysis and help us determine upon completion of the Review the most effective measures to protect consumers.

In the interim, our supervision of insurance providers will continue to ensure they implement the necessary requirements to address the concerns we set out in our recent industry letter.

Consumer research

Perhaps some of the most interesting reading from the report comes from the consumer research conducted by the Central Bank, which gives greater insight into how consumers choose to engage with insurance companies.

From its research the Central Bank outlined that consumers tend to show a clear preference for staying with their existing insurance provider, even comparing prices elsewhere and using such a comparison as a negotiating tool for getting a better price instead of simply switching.

The complexity of insurance was also another factor favouring insurance companies, with limited customer knowledge one of the reasons why many believe it easier to remain loyal rather than change providers.

The report also noted that consumers are likely to consider insurance in negative terms, resulting in a lack of trust as well as interest. Additionally, consumers are more likely to get involved when it comes to the cost of their car insurance as opposed to home insurance costs.

What the news means for consumers

An important part of the overall review process for the Central Bank, especially in its final stage next year, is considering both the costs and benefits of differential pricing, for it does have both.

On one hand, differential pricing systematically targets loyal customers through the use of big data and charges them a higher premium for reasons other than risk and cost of service.

While on the other hand, a possible benefit of differential pricing is consumers being able to secure a new customer discount elsewhere, thus encouraging competition.

However, competition is the one thing the regulator in Ireland does not want to stymie, never mind have insurance companies leave altogether as a result of banning the practice. 

That being said, the Financial Conduct Authority (FCA), the regulator in Britain, has moved to ban the practice outright following a full review it concluded earlier this year.

Meanwhile, Insurance Ireland, the representative organisation for the insurance sector in Ireland, stated that it welcomes the report published by the Central Bank, calling it “informative and balanced”.

The insurance body highlighted both the benefits and costs for consumers that differential pricing practices could bring about. However, it also underlined the importance of ‘engaging with insurance providers and intermediaries’ as well as the necessity of ‘shopping around regularly’.

Next steps

All in all, the publication of the Central Bank’s latest interim report reveals more steps in the right direction when it comes to insurance reform here, which is of course good news for consumers.

However, the third and final stage of the Central Bank’s review into differential pricing, which will include its overall findings and recommendations, won’t be published until sometime later in 2021.

The Central Bank importantly noted that the work currently being undertaken is ongoing and that consideration of the likely costs and benefits of any potential solution is essential.

No date has yet been given as to when this might be, with sometime in late 2021 naturally having more of an impact on policy holders.

Meanwhile, Sinn Féin has said it will publish legislation this week to ban the practice of dual-pricing in the Irish insurance market, which it says would give the Central Bank, Courts and FSPO the power to enforce these new laws.

Spokesperson on Finance and Public Expenditure and Reform for Sinn Féin, Pearse Doherty said:

“This week I will publish legislation that will ban the use of dual pricing by insurance companies. This legislation will reduce premiums, resulting in significant savings for consumers. It will also reduce the cost and amount of time consumers spend switching, and increase competition in the insurance market.”

As we await the final recommendation from the Central Bank, there is one thing consumers can do in the meantime in order to pay less for their insurance and that’s switch.

A recent update

In July, the Central Bank released its third and final report on differential pricing in the insurance sector.

The report seeks to ban the practice of price walking for car and home insurance, but it has stopped short of banning dual pricing. 

You can learn more about how this will impact consumers and insurance policies here.

Switch and save on your insurance

It’s like we always say at bonkers.ie, switching saves! And the best way to save money on your insurance is still by shopping around and switching every year.

Take a look at our insurance comparison page today and easily compare quotes across a wide range of policies and providers in only a couple of minutes.

So whether you’re looking to switch insurers or take out cover for the first time, there’s no better way to do so by comparing the best prices from all insurance providers in seconds right here on bonkers.ie.

The Central Bank's new rules will impact home and car insurance. If you’re seeking more information on either of these check out our helpful articles below:

Get in touch

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