Central Bank will consider ban on insurance dual pricing

The Central Bank of Ireland will consider banning dual pricing on motor and home insurance policies as part of its review into pricing practices in the sector, it told an Oireachtas committee on Tuesday.

However, Derville Rowland, director general of financial conduct at the regulator, said it would not "prejudge the matter" ahead of a major "multi-annual" review.

Ms Rowland confirmed that the Central Bank has started preparing for a “huge piece of work” on the motor and home insurance market and will shortly write to insurers’ chief executives setting out the terms of reference.

The review will formally begin in 2020, with a “wide and deep” analysis of the market expected to be published by the end of the year.

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Dual pricing commonly refers to the practice of offering new customers better rates than those renewing their policies, who may end up paying a “loyalty premium” that penalises them for not shopping around.

Sinn Féin finance spokesman Pearse Doherty believes this results in a rip-off of the most vulnerable consumers and should be banned. The UK's Financial Conduct Authority has recently said it is considering a ban.

At a hearing of the Oireachtas finance committee, Mr Doherty asked Ms Rowland if “all options are on the table”, including a ban.

Ms Rowland said they were, but that the Central Bank’s starting point was that “price differentiation is not wrong per se”, and its “guiding principle” was fairness over the life cycle of an insurance product and the compliance of insurance companies with the Consumer Protection Code.

“We’re not a regulator of price. That’s not part of our role,” she said.

Competition issue

The Central Bank is keen to avoid “unintended consequences” from any new regulations, such as a stifling of competition. As part of its review, it will liaise with the FCA and consult the Competition and Consumer Protection Commission (CCPC).

Another term, differential pricing, also refers to the business of setting different prices for customers on considerations other than the expected cost of claims or expenses.

Differential pricing has been in use in various industries for decades. However, the “big data” tools available to insurers have become increasingly sophisticated and powerful in recent years.

Ms Rowland said the Central Bank would both adjust its supervision of insurance companies and review its Consumer Protection Code in light of new “variants” of differential pricing that have been facilitated by technological advances.

Earlier this month, it also introduced a new regulation requiring motor insurers to prominently include details of the previous year’s premium on the renewal notices sent to customers. Ms Rowland said there was evidence in other markets that this encouraged consumers to shop around.

She added that any misuse of consumers’ data was a matter for the Data Protection Commissioner.