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Majority of insurers use controversial differential pricing practice, Central Bank report finds

The practice sees customers with similar risks paying different premiums.

Image: Shutterstock/fongbeerredhot

THE CENTRAL BANK has found that the majority of insurers in the Irish market use the controversial practice of differential pricing, leading to customers with similar risks paying different premiums.

In a new interim report, the regulator found that a number of pricing practices were identified that led to customers with a similar risk and cost of service paying different premiums for reasons other than risk and cost of service.

The practice was found across the private car and home insurance markets. There are significant differences between what different groups of customers pay relative to their expected cost.

Customers with the longest tenure were found to pay the most, suggesting a loyalty penalty and highlighting the importance of shopping around.

Insurance providers failed to demonstrate consideration of how these pricing practices may impact certain groups of consumers differently.

Research carried out by the bank found that consumers show a clear preference for staying with an existing insurance provider.

They also often compare prices with other insurance providers to help to negotiate a better price with their current provider, rather than switching.

The report also found that most consumers have a limited knowledge of how insurance operates, leading to a tendency to believe it is easier to stay with a current provider than switch.

The legal requirements associated with insurance mean consumers do not see it as a discretionary purchase and it is frequently considered in largely negative terms. This results in both a lack of trust and lack of interest.

The Central Bank found that differential pricing can be associated with some benefits for consumers, as well as costs.

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The bank’s review began in January and is set to be concluded in 2021. Finance Minister Paschal Donohoe said it is important to let the Central Bank complete its work before deciding how best to proceed. 

“I would therefore caution against making knee-jerk decisions based solely on this Interim Report, as to do so may have unintended consequences,” the minister said.

Insurance Ireland, which advocates for the industry, said the review underlines the importance of engaging with insurance providers and intermediaries to get the best deal and shopping around regularly. 

“Our members are already in the process of making changes to improve transparency where applicable. They have been working actively with the Central Bank and look forward to a continued constructive engagement throughout the remainder of the review,” it said.

Seán Fleming, the Minister of State with responsibility for the insurance industry, will meet with Insurance Ireland tomorrow to discuss the findings of the interim report. Fleming said he will “press the need for insurers to treat their customers with both fairness and respect.”

About the author:

Ceimin Burke

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