A MAJOR REPORT has recommended banning insurance companies from charging higher premiums to customers who renew their home and motor policies rather than shopping around for better value.

‘Price walking’ is the practice of charging customers higher premiums the longer they’re with an insurer.

According to the Central Bank of Ireland, it’s the most common form of ‘differential’ or ‘dual pricing’, a broad term referring to the practice of charging different premiums to customers who the insurer has assessed as having identical risk profiles.

It effectively means the insurer is discriminating between customers for reasons other than the expected cost of claims.

This morning, the Central Bank has released its final report on differential pricing in the home and motor insurance sector.

It recommends that price walking be banned outright because it “is unfair and could result in unfair outcomes” for customers.

It marks the conclusion of a review, which found that stealth pricing practices such as price walking are widespread across the industry.

The review, which began in 2019, covered an estimated 3.2 million insurance policies, the Central Bank said.

“Our analysis showed that long-term customers (those who stayed with the same insurer for nine years or more) pay, on average, 14% more on private car insurance and 32% more on home insurance than the equivalent customer renewing for the first time,” the Central Bank said.

“On this basis, we propose to ban price walking by insurance providers.

“This means that at the point of renewal, insurance providers cannot charge personal consumers who are on their second or subsequent renewal a premium higher than they would have charged them if they were a year one renewal consumer at that point in time.”

While the report stops short of recommending a ban on differential pricing altogether, it proposes tighter oversight of home and motor insurers.

The Central Bank recommends that firms be required to carry out annual reviews of their pricing policies.

It also recommends controls on automatic policy renewal, including a requirement that firms receive written consent from customers before the renewal process begins. 

Public consultation on the proposals will begin in October, the Central Bank said.

‘Victory for consumers’

The regulator’s review of the industry began in 2019 after Sinn Féin finance spokesperson Pearse Doherty raised the issue of dual pricing in the Dáil.

After the first phase of the review was completed last year, the Central Bank concluded that while “a number of firms maintain that they do not utilise differential pricing… the majority of firms do” engage in it “through various techniques”.

Today’s report underlined the review’s finding that there is “insufficient evidence of a consumer-focussed culture in respect of pricing decisions and practices.”

In a statement this morning, Doherty said the report is a “damning indictment” of Ireland’s insurance industry and how it “rips off consumers”.

The Donegal TD added, “Dual pricing has been used to target customers who are less likely to shop around and results in them being charged artificially high premiums at renewal. This is the loyalty penalty.

“The Central Bank has found that renewing customers are paying significantly more than the actual cost of their policy.

“This impacts 3.5 million motor and home insurance policies.

“We know from previous Central Bank reports that motor insurance customers are being overcharged by as much as 25% a year, while home insurance customers are being overcharged by as much as 35%. 

Earlier this year, Doherty introduced legislation to ban dual pricing altogether, which passed the second stage in February. However, the Government put a nine-month stay on the passage of the bill.

“I will now engage with the Central Bank and the Department of Finance to ensure that the changes necessary are robust and fair for consumers; following on from the proposals I put forward in legislation in January,” Doherty said this morning.

The report was also welcomed by the Minister of State with responsibility for insurance Sean Fleming and Minister for Finance Paschal Donohoe.

“The Government is committed to tackling the issue of dual pricing under its Action Plan for Insurance Reform,” Fleming said.

He added that while the public consultation, which begins in October, is important, “given the technical nature of this matter, we also expect that all insurers will now review and end these practices.”

Director of Financial Conduct at the Central Bank Derville Rowland said the proposals “strengthen the consumer protection framework and protect consumers from the stealth practice of price walking”.

However, she added, “We are conscious of the benefits that pricing practices can also provide so our proposals are balanced to allow consumers retain the opportunity to avail of new business discounts to allow them to shop around for the best prices, while ensuring that those who remain with the same insurer are not unfairly hit by loyalty penalties.”

Insurance Ireland, the main lobby group for the insurance sector, also welcomed the report and said its members “remain fully committed to working with the Central Bank of Ireland”.

Its chief executive, Moyagh Murdock, added that the report “underlines the importance of consumers shopping around regularly to ensure they get the best value, as consumers would with utilities such as telecoms/broadband or gas and electricity services”.