What’s happening with dual pricing in Ireland’s insurance market?
Rob Flynn
Staff Writer

The Central Bank of Ireland is conducting an ongoing review of dual pricing in the Irish insurance market, with a view to better protecting Irish consumers, but there's more going on behind the scenes which consumers should be aware of.

Keeping abreast of all the latest developments in the Irish insurance market may not be on the top of everyone’s news agenda, especially with all that’s going on, to borrow a phrase.

However, what you might have more importantly noticed is an incremental increase in the cost of your home or motor insurance premium, especially if you have been with the same insurer for the past number of years.

This is largely due to the fact that the majority of insurers use what’s called dual pricing to charge higher premiums to select customers, confirmed in a report by the Central Bank of Ireland (CBI) which is currently looking into the practice in the motor and home insurance markets here. 

But before we get into the specifics of what exactly is happening and what it means for you, the consumer, here’s a reminder of what exactly we mean by dual pricing.

What is dual pricing?

Dual pricing, also referred to as differential pricing, is a term used to describe when insurance companies charge new and existing customers different premiums despite having similar risk profiles.

The practice occurs most commonly where an insurer charges new customers significantly less than customers who are renewing an existing policy, with renewal customers oftentimes paying what has become known as a ‘loyalty premium’ for not seeking out competition elsewhere. 

Other complex pricing practices such as ‘price walking’ are also utilised, whereby insurers increase premiums incrementally each year for existing customers come renewal time.

What’s been happening?

Since November of last year the Central Bank of Ireland (CBI), the statutory body responsible for regulating financial services here, has been conducting a review into differential pricing in the motor and home insurance markets.

The regulator concluded the first stage of its three-stage review process at the beginning of September, noting that the majority of insurance firms under review do in fact implement dual pricing practices through various techniques, despite many insurers denying any such claims.

The Central Bank is expected to complete an interim report before the end of 2020, while its final review and findings won’t be heard until some time in the third quarter of 2021 at the earliest.

However, the programme for government, set out in June of this year, promised to “remove dual pricing” from the insurance market, but with no definitive timeline released as of yet. 

The big question that remains for consumers is, of course, when this might be? With the government already under strain dealing with Covid-related issues and a full report from the CBI not expected until closer to the end of next year, it wouldn’t look like any substantive change from government is coming any time soon...

That being said, as part of its market analysis and conclusion of the first stage of its investigations, the Central Bank issued a letter to the insurance sector outlining its initial findings and with an expectation that insurers would ‘assess any areas where dual pricing was being implemented’ and “mitigate any risk to consumers immediately.”

The practices of dual pricing and such practices have been well-known for some time, long before any such report was initiated by the regulator and the likelihood is there won’t be any real change for consumers until real legislation is drawn up and passed by government.

What it all means for consumers

Those in favour of banning the practice of dual pricing argue that is a step in the right direction when it comes to consumer protection. Any legislation brought forward to ban the practice would help to ensure consumers are not being charged extra for simply being a loyal customer, or falling within a certain targeted demographic.

That's because many insurance companies rely on big data and detailed information about their customer base to target certain customers who, for example, may not be prone to switching regularly, such as more elderly customers.

Removing the practice would ensure more accountability from insurance companies and put an end to the increasing prices paid by customers who have been with the same insurer for more than a couple of years.

At the same time, banning the practice could potentially have an adverse effect on competition in the market, with nothing stopping insurance companies from leaving should any laws be passed.

At the moment if consumers are unhappy with their premium it’s possible to shop around for the best price, but with potentially fewer options out there, competition and choice for consumers would dwindle, proving more difficult for them to get better value.

The CBI itself is aware of this potential problem. Its director of consumer protection, Gráinne McEvoy, has said that the bank is keen to avoid “unintended consequences” from any new regulations around dual pricing, such as the stifling of competition.

“If you ban the practice, it might result in some industry firms exiting the market, reducing competition and choice for consumers,” she has said, adding that the ability of households to secure a new customer discount by switching providers regularly is a possible benefit of differential pricing.

However, all in all, more accountability and transparent pricing should be a good thing and should be largely welcomed by consumers, especially those who see value in being a loyal customer.

And while at the moment there doesn’t seem to be much movement, the wheels are being set in motion...

A beacon of light?

Leading opposition party Sinn Féin currently has plans to bring forward new legislation which would outlaw dual pricing in the market, banning the practice once and for all.

Finance spokesperson for the party, Pearse Doherty has said that the ‘legislation is currently before the Office of Parliamentary Legal Affairs’ and if passed by cabinet would see an end to the pricing system well before a final review has been announced by the regulator.

However, signing bills into law can be a timely process, to say the least, so it would still be quite a while before consumers see any meaningful change, not to mention money back in their pockets.

Positive news from across the pond may also do well to light a fire under law makers here, with news that the Financial Conduct Authority (FCA), the regulator in Britain, has moved to ban the practice outright. 

Catalyst for change

The FCA recently finalised a review into the pricing practices in Britain with a view to ‘boosting competition and delivering fair value to all insurance customers’ and is currently moving to ban the practice outright.

Part of the measures suggested by the FCA include product governance rules which would see insurers being required to consider how they offer ‘fair value’ to their customers over the longer term, as well as having to report certain data sets to the FCA so as to ensure compliance with new rules.

The moves made by the FCA will do well to light a fire under the Central Bank and will, with any luck, stir up an increase in public discourse focused on bringing about positive change for consumers.

Recent updates

In December 2020, the Central Bank of Ireland released its interim report into dual pricing practices. The report confirmed that the majority of insurance providers apply some form of differential pricing for new and existing customers. More recently in July 2021, the CBI released its third and final report. The report sought to ban the practice of price walking or ‘loyalty penalties’, but stopped short of banning dual pricing.

Remember to always compare

The only way to make sure you’re not paying out of pocket for your insurance cover, or any of your household bills for that matter, is by regularly comparing the market for the best deals when your contracts expire.

It’s like we always say at bonkers.ie; switching saves, and there’s no better way to do so by comparing the best prices from all insurance providers in seconds right here on bonkers.ie.

So, whether you’re looking for life insurance, specified illness, or mortgage protection insurance, bonkers.ie has you covered.

Dual pricing primarily impacts motor and home insurance policies. If you’re looking for more information on either of these, check out our guides below:

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