Irish regulator to review insurance differential pricing

Out-Law News | 22 Nov 2019 | 2:50 pm | 2 min. read

The Central Bank of Ireland (CBI) is planning a major review of the pricing practices of Irish home and motor insurers, it has announced.

The regulator is seeking to establish the extent to which dual or differential pricing leads to Irish consumers being fairly charged different premiums for the same products, including the impact of 'big data' and other technologies on the practice.

The CBI is not involved in insurance policy pricing or in approving proposed increases to premium rates. It is, however, concerned with ensuring that insurers treat their customers fairly and comply with the Consumer Protection Code.

Campbell Niall

Niall Campbell

Senior Associate

While the Central Bank of Ireland does not have a statutory role in setting the price of insurance, it does however have a relatively broad mandate to protect the interests of consumers. 

Derville Rowland, the CBI's director general of financial conduct, told a committee of the Irish parliament, the Oireachtais, that the work would be carried out in three phases, and involve consumer focus groups and "comprehensive" market analysis.

"A comprehensive data-gathering and analysis is essential in order to move beyond anecdotal evidence or individual case studies which, while potentially pointing to problematic practices, do not establish a comprehensive view across the industry," she said.

The CBI intends to liaise directly with the UK's Financial Conduct Authority (FCA), which recently published interim findings from its own review of differential pricing by insurers.

Differential pricing refers to differentiating between customers on considerations other than the expected cost of claims and expenses, for example the likelihood that the customer will renew or shop around. Various techniques are in use across a number of industries, including airlines, hotels and online retail. Dual pricing refers to charging customers with similar insurance risk profiles different prices for the same or similar insurance policies, for example offering a discount to new customers.

Insurance law expert Niall Campbell of Pinsent Masons, the law firm behind Out-Law, said that the CBI had "a relatively broad mandate to protect the interests of consumers", albeit no statutory role in insurance pricing.

"The Consumer Protection Code 2012 is a prime example of that together with more recent developments, including the requirement on motor insurers in Ireland to provide individual policyholders with details of premium paid for private motor insurance renewals in the previous year," he said. "The planned review of differential pricing in the Irish motor and home insurance markets is consistent with that mandate."

"In the context of undertaking its review, it is noteworthy that the CBI plans to liaise with the FCA. Without wanting to pre-empt the CBI's review and findings, Irish motor and home insurers may find it beneficial to read the FCA's recent interim report into the pricing of home and motor insurance in the UK. That report gives a clear sense of what the FCA's concerns are with respect to pricing practices. It also sets out a list of potential remedies that the FCA may seek to implement," he said.

The FCA, in its interim report, said that it was not concerned about the practice of discriminatory pricing itself but rather whether some practices used by firms which lead to them earning higher margins from some consumers, including automatic renewals, are potentially harmful. Among its proposed remedies are whether to limit or ban price increases for renewing customers, prompting customers who have renewed the same policy consistently to consider other options and restricting the use of automatic policy renewals, or making them opt-in only.

The FCA intends to publish a final report in early 2020, at which point it will consult on potential remedies.