Some UK insurers may be forced to change how they set their prices for motor and home insurance as a result of a regulatory investigation next year, according to Fitch Ratings.
Insurers have been accused of overcharging customers who do not shop around for the best deal and Fitch expects those insurers engaging in this practice will have to adjust their prices.
However, Fitch did not expect these price changes to materially weaken insurers’ profits because they likely will align prices through a combination of price cuts for existing customers and price rises for newer customers.
“The sector’s profitability is already weak, so it is not viable for insurers to significantly cut prices in one area without raising them in another,” said Fitch in the briefing.
The UK regulator, the Financial Conduct Authority (FCA), has launched a market study on general insurance pricing practices, affirming that it expects insurers to look after the interests of all customers and treat them fairly, whether they are new or long-standing.
Fitch said the investigation follows the submission of a so-called super complaint by the charity Citizens Advice to the Competition and Markets Authority, calling for action against the overcharging of loyal customers across several markets, including home insurance.
The FCA aims to publish preliminary conclusions next summer and a final report including any resulting proposals by the end of 2019.
“Having to demonstrate equitable pricing between existing and newer customers would put the onus on insurers to charge a fair price rather than relying on customers’ ability and inclination to assess the fairness of the price with which they are presented,” said Fitch.
Fitch noted that a comparison of pricing between existing and newer customers will have a greater impact than the current FCA requirement, introduced in April 2017, for insurers to show both current and new premiums on renewal documents.
“Showing last year’s premium alongside this year’s renewal quote helps customers to spot large price rises but does not alert them to potential overcharging if last year’s premium was already uncompetitive,” explained Fitch, explaining that customers may have been overcharged for several years without knowing it.
“We expect the FCA investigation will lead to more competitive pricing for customers who have stayed with one insurer for several years and who may have been paying above-market prices. Insurers are likely to start competing more strongly to keep or attract these customers,” continued Fitch.
Source: Fitch
Related:
UK Regulator to Probe Personal Lines Providers for Overcharging Customers
Topics Carriers Homeowners
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