Insurers Pledge to Address Premiums Inequality


May 2018

Insurers Pledge to Address Premiums Inequality

In order, the Association of British Insurers (ABI) and British Insurance Brokers' Association (BIBA) have jointly published a set of rules designed to tackle the longstanding issue of ‘dual pricing’ in the insurance industry.

The Guiding Principles and Action Points (GPAP) document outlines the insurers’ commitment to tackling the controversial issue head on.

Gareth Shaw of consumer group Which? praised the decision, saying "a review of the unfair practice that sees existing customers charged excessively steeper premiums than new customers is long overdue.”

Dual pricing is the practice which sees insurance companies pricing premiums differently for new and existing customers. New customers are generally offered lower premiums, in order to attract them to the business, whilst existing customers are charged much higher rates – effectively punishing them for their loyalty.

ABI chairman Andy Briggs said that currently “the renewal market simply doesn't work where loyal customers get charged much more than new customers… These new guiding principles and action points are a positive initiative by the ABI and BIBA members to demonstrate that the whole industry recognise this is an important issue that needs to be addressed."

The practice is much maligned across regulatory bodies, consumer support groups, and various charities, and has drawn increasing attention from the government as well. As part of a regulatory crackdown on the issue, new rules were recently introduced which require insurers to tell their customers what their previous premium was on renewal notices.

The GPAP commitments from ABI and BIBA members include:

  • “ABI and BIBA members do not support excessive differences between new customer premiums and subsequent renewal premiums that unfairly penalise long-standing customers.”
  • “ABI and BIBA members will take action so that customers’ tendency to shop around at renewal is not used to lead to excessive pricing differences that unfairly penalise long-standing customers.”
  • “The ethos and approach to better outcomes for long-standing customers will be given board or senior management level priority and formally incorporated into firms’ procedures for determining the premium at renewal.”
  • “ABI and BIBA members should make clear in written, online or verbal customer communications that the new customer premium only applies for that year and subsequent renewal premiums may be higher.”
  • “ABI and BIBA members who impact the final premium paid by customers should review their pricing approach for customers who have been with them longer than five years and assess whether this approach delivers a fair outcome.”
  • “The ABI and BIBA will publish a report in no more than two years’ time that demonstrates how ABI and BIBA members have sought to tackle excessive differences between new customer premiums and subsequent renewal premiums that unfairly penalise long-standing customers.”

The chairman of BIBA, Lord Hunt of Wirral, said that “it is part of the DNA of insurance brokers to put the best interests of the client first. That is why I am so delighted that insurers and brokers have come together for the benefit of our established and loyal customers, setting out a positive path forward on renewal pricing. I would encourage everyone within the wider market to join with us in adopting these guiding principles and action points.”

Chief executive of Citizens Advice, Gillian Guy, said “our research found that long-standing home insurance customers can pay an average of £110 more a year than new customers.”

She went on to caution that whilst this is a step in the right direction, in the end “whether this is successful will depend on prices actually coming down for loyal customers.”