Price walking ban
A rule requiring an insurer to offer a renewing customer the price it would quote a new equivalent customer, ending the loyalty penalty.
Since 1 January 2022 a UK motor or home insurer may not offer a renewing customer a price higher than it would quote the same customer coming in as new business through the same channel. The FCA rule, published in May 2021 in policy statement PS21/5 and set out in ICOBS 6B, goes by a market name: equivalent new business price. It ended price walking, the practice of winning a customer with an introductory rate and then lifting the premium year after year, counting on the inertia of those who do not shop around. The practice was rational for each insurer and costly for the whole, since it made loyal customers, often older or uneasy with comparison sites, pay for the discount given to mobile ones. The regulator called it the loyalty penalty. The FCA did not cap increases. It imposed equal treatment, which leaves the insurer free to set its price level and only bars it from discriminating by tenure. The expected effect, accepted in advance, was a transfer: loyal customers pay less, new ones a little more. The FCA put the net gain for consumers at 4.2 billion pounds over ten years.
The United Kingdom Financial Conduct Authority banned price walking in motor and home insurance from 1 January 2022, following a market study that had counted six million policyholders paying high margins in 2018, 1.2 billion pounds too much in that single year had they paid the average price for their risk.
- FCA, MS18/1.3, General insurance pricing practices market study, final report, September 2020 (six million policyholders paying high margins in 2018, 1.2 billion pounds too much)
Follow the research
One letter a week. First, the week's underwriting note, when one is published: a dated, argued decision, signed by Paul Bernardski. Then what the observatory published on cyber risk, political risk and insurance. No account, no tracking.
No spam, one-click unsubscribe, no data ever sold.