“It’s a tricky problem to solve. Over the last 20 years insurers have lost money overall on personal insurance - there aren’t super profits being made in the market as a whole. As such, any proposal that forces premium reductions for a significant group of customers (the FCA mention 6 million customers) will inevitably mean price rises for a different group of customers, typically those that do shop around.
Clearly no one wants to see exploitative pricing and we have all seen cases of very long-standing, typically elderly, home insurance customers paying multiples of the premiums that could be achieved by shopping around. As ever though, trying to improve competition is not a singular act - every act has a consequence and often has unintended consequences. One such consequence could be significant price rises for young customers who are the demographic that do tend to shop around.
The ABI and BIBA initiative to reduce dual pricing hasn’t been given much time to filter through so I’m concerned that this could be taking a sledgehammer to crack a nut.
Many insurers are already responding by creating products that reward loyalty and I think that’s a great solution - make it a customer proposition whereby customers can choose insurers that reward loyalty. Other customers might prefer the annual merry go round of shopping - it’s a very dynamic and competitive marketplace.
It’s also worth remembering that many customers are actually very happy to stick with their existing insurer and they believe in loyalty - they are aware that they pay more than they could elsewhere but they make a choice based on other factors than just price. In the home insurance market there are some very high quality insurers such as Hiscox and Chubb that have a customer proposition around claims service, cover and quality. Our High Net Worth household team recommend insurers on these factors not just the cost. Focusing purely on price is not the right approach when it comes to all insurance and as a profession we should be talking solely about value - a very different discussion.”