Central Bank concerned at insurance pricing practicesSeptember 9, 2020
The Central Bank has said it is concerned about weaknesses it has identified in the pricing practices used by some insurance companies, following completion of the first phase of its investigation into the use of so-called “differential pricing” in the insurance market here.
The bank has found that some firms may not be adequately considering the effect of their pricing practices on their consumers, potentially leading to poor customer outcomes.
An analysis conducted in recent months by the bank established that while some firms claim they do not use differential pricing, the majority of firms do actually utilise it through various techniques.
It also discovered that in some insurers, there are inadequate governance and control arrangements.
These include insufficient evidence that Boards of Directors have appropriately considered or discussed the impact of their firms’ differential pricing practices on their customers.
The study, which involved 33 inspections and meetings with 11 firms, also concluded that there was insufficient evidence of a customer focussed culture in respect of pricing decisions and practices at some insurance companies.
Differential or dual pricing is the practice of differentiating between customers for reasons other than the expected cost of claims and expenses.
Those who use the practice, including insurers, utilise sophisticated data analysis techniques to build up a profile of customers.
They can then use that information to, for example, charge customers who are less likely to shop around at renewal more than other clients who are more likely to seek alternative quotes.
In January the Central Bank began a review of pricing in the motor and home insurance markets.
This followed a complaint by Sinn Féin finance spokesman Pearse Doherty that there was evidence that differential pricing was being used to take advantage of consumers.
Today, following the conclusion of the first phase, which involved a market analysis of whether differential pricing was being used and if it is in line with the consumer code, the Central Bank has written to insurers, managing general agents and intermediaries here to inform that immediate action is required on a number of fronts.
The regulator wants insurers to assess their own pricing methodologies against the Central Bank’s definition of differential pricing.
“If a firm does not consider its pricing practices to fall under the definition of differential pricing, the rationale for this should be clearly documented and agreed by the Board,” the letter from Derville Rowland, Director General of Financial Conduct at the Central Bank, says.
The companies are also being told that they need to take responsibility at board level for the impact of differential pricing on customers, “to ensure a firm’s pricing practices are well-governed, controls operate effectively and appropriate oversight is in place, with roles and responsibilities for pricing activities clearly defined.”