DO YOU EVER wonder why your insurance premium keeps going up every year when you renew? Or why it never goes down despite not having made a single claim?
Most people think that their insurance premium is based on how likely they are to make a claim and how much that claim would cost their insurer. But that is far from the whole story.
In fact, a report published by the Central Bank in November found that the average car insurance premium had risen by 35 per cent in the past decade despite the cost of claims falling by 9 per cent.
We now know that insurance companies are using a pricing technique called dual pricing to charge customers higher prices than the actual cost of their policy.
This involves using big data and complex pricing models to identify consumers who are more likely to renew and then charging them with the highest price they will bear.
So, instead of rewarding you for your loyalty and no-claims bonus with reduced prices, they increase your premium in the knowledge that you are less likely to shop around or switch.
Wide-ranging implications
This practice affects vast numbers of Irish policyholders, costing them many hundreds of euros every year.
Today, the Dáil will vote on my Insurance Bill to ban this practice, reducing insurance costs and increasing transparency in how insurers calculate prices.
Between 2014 and 2017 the practice was banned in 20 US states, including California and Florida. Their regulators slammed the practice as being unfairly discriminatory, ruling that insurance prices should be based on how likely you are to make a claim and nothing else.
In September 2019 I wrote to the Central Bank requesting that they investigate this practice, submitting a 130-page complaint the following month outlining its impact on consumers.
The Central Bank agreed to this request and began their investigation at the beginning of 2020.
In December they found that this practice was endemic in the insurance market, with loyal customers being charged as much as 35 per cent more than the actual cost of their policies.
What does this mean in practice?
It meant one customer with Liberty Insurance receiving a renewal quote of €1,420 for his car insurance before being offered a premium of €680 for the exact same policy with the same provider when he went online.
This is the loyalty penalty, with unknowing consumers seeing the cost of their insurance remain stubbornly high for no good reason.
More than 70 per cent of motorists and homeowners renewed their insurance in 2019. Many of them are victims of this practice, paying more than the actual cost of their policies.
Dual pricing has been found to disproportionately impact older and vulnerable customers. My legislation will end this price-gouging. It will ban dual pricing so that insurance companies will not be allowed to charge you more than the actual cost of your policy.
This follows action that has been taken by the financial regulator in Britain, which announced it was going to ban the practice in September last year. The British regulator found that a ban on dual pricing would have real benefits for consumers, saving them between €4 and €13 billion in the next decade and reducing average insurance prices by as much as 30 per cent.
They also found that a ban would result in fairer competition and less time spent by customers switching and negotiating prices. My legislation provides a similar price remedy. Irish consumers deserve no less.
Best practice
It will mean that when an insurer offers a renewal premium to a customer, the price can be no greater than the premium they would have been offered as a new customer.
As the British regulator has found, this will reduce prices in home and motor insurance.
The legislation will also bring transparency to the industry and how they set prices. When an insurance company offers a customer a new or renewal quote, they will be required to tell the customer how the price has been calculated and what factors have been used.
Basing a price on how likely a customer is to renew, how old they are, their income or educational attainment will be banned. Crucially, the Central Bank will be given powers to sanction any insurer that continues to use this discriminatory practice, while drawing up a Code of Practice that can be used in the Courts and by the Financial Ombudsman.
As regulators in Britain and the United States have found, dual pricing discriminates and price gouges customers. Banning it would reduce prices, increase transparency and promote fairer competition.
But it is also complex.
That is why my legislation today will empower the Central Bank to draw up the regulations that will govern the ban, using their expertise to remove this practice from the insurance market.
Over the past decade, the insurance industry has spun a story of claims and fraud to justify price hikes. Despite this, the cost of claims fell while prices and profits rose. In 2019 alone, the insurance industry recorded an operating profit of 10 per cent.
They never told their customers they were using a price-gouging practice that was banned in 20 US States and will be banned in Britain later this year.
My legislation will ban this practice in the Irish market, reducing prices and bringing transparency to consumers for once and for all. It is essential that all parties who want to help consumers and bring accountability to the industry support my Bill today.
Pearse Doherty is a Donegal TD and Sinn Féin spokesperson on Finance.
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