Car and home insurers face ban on charging existing customers more than newbies - MSE News

Former_MSE_Naomi

Car and home insurance customers should pay no more when renewing their policy than they would if they were taking out a new one with the same firm, under radical new proposals from the financial regulator...

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'Car and home insurers face ban on charging existing customers more than newbies'

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Takmon

Another change that if successful will slightly reduce the price of people too lazy to do any kind of comparison but increase the price for people who make the effort to shop around. I don't see why the financially lazy should have their hand held with measures like this.

Yahoo_Mail

Takmon said:

Another change that if successful will slightly reduce the price of people too lazy to do any kind of comparison but increase the price for people who make the effort to shop around. I don't see why the financially lazy should have their hand held with measures like this.

Precisely.  But then Martin was a big fan of getting rid of bank charges, which were not too dissimilar, the stupid subsidising the savvy.

Sandtree

Takmon said:

Another change that if successful will slightly reduce the price of people too lazy to do any kind of comparison but increase the price for people who make the effort to shop around. I don't see why the financially lazy should have their hand held with measures like this.

I haven't read the full paper yet but one of the quoted benefits is to increase competition which will drive down overall costs.

Its easy to subsidise a 25% discount on new business quotes when you've got several million customers that have been with you for 5+ years paying a loaded premium. If you are a startup or recent entrant to the market though without a massive backbook competing on discounts for a similar product is much harder hence why most go after niche segments or have adverse terms etc.

Remove the backbook advantage and you may find others willing/able to offer a new proposition that lowers cost through efficiency etc rather than backbook subsidy and it could drive overall prices down.

Personally I'm slightly torn on the matter, my only general insurance I buy annually is Home Insurance, there is only one home insurer that ever quotes a sensible price for us and so having not to cancel and rebuy each year is probably worth the circa £20 per year it'll likely cost.

convolvulus

This will result in insurers advertising and selling stripped down basic policies, and then selling the rest as add-ons by direct marketing once you are a customer.

That way they won't face much open competition for all the "extras", which will be everything that does not have to included by law in an insurance contract. So they will still comply with the need to offer everybody the same price, but only the basic contract price will be subject to competitive price pressure.

 Pretty much how mobile service providers made their money on roaming charges; you only really discovered the cost once you were strapped in, before the EU stopped that ruse.

Sandtree

convolvulus said:

That way they won't face much open competition for all the "extras", which will be everything that does not have to included by law in an insurance contract. So they will still comply with the need to offer everybody the same price, but only the basic contract price will be subject to competitive price pressure.

Will never fly with aggregators in the picture... Motor insurance the legal minimum is RTA Only which isnt even sold as a consumer product but 90%+ of policies sold are comprehensive cover with several large insurers not offering TPO or TPFT which are the two lower levels. Aggregators will allow customers to still quote for Comp and if others don't want to reveal those prices then they simply won't sell.

Outside of Motor there is no legal minimum on any consumer insurance and so the idea is invalidated straight away. Similarly the common optional extras like Legal Expenses and Home Emergency or Accident Damage are also already tickboxes on aggregator sites so prices can be updated tor reflect including those options or filtering out those who won't offer them (via the site). 

paddyandstumpy

This 'win' is so short sighted. 

Currently, insurers and brokers generally work on a 3 year model, aiming to recoup acquisition costs for the policy (taken in year 1) over the first year and subsequent 2 renewals. 

The fee charged by the aggregator (price comparison) site is usually in excess of £60, so insurers will look to recover this at a rate of £20 per year. 

If insurers need to offer the same prices to new customers as renewing ones, they will have to charge for the acquisition cost fully in year one.

I feel the FCA went far enough to protect consumers (from themselves!!) when they introduced the rule that insurers had to declare expiring price, and remind customers to shop around if they'd been a customer for 4 years already. 

If they are now mandating that dual pricing can't continue, insurers will have to adapt their pricing model to adapt, and aim to make money every year. 

50Twuncle

I currently pay (with Quidco cash back) £85 for home insurance and £300 pa for 2 cars fully comp cover - for myself and wife

Hardly breaking the bank !

I shop around every year - and use Quidco

convolvulus

@Sandtree
I take your point. But insurers will find some angle similar to the way mobile service providers did with roaming charges - a profitable element that escapes competitive pressure. Up till now that need has been fulfilled by renewal pricing. If that is taken from them they will innovate to find an alternative. Maybe there will be an increased excess if the house has been vacant for over 10 days, or something.

I guess they will also look to provide more portfolio products to cover house, cars, breakdown, kids at Uni, etc, with bundle discounts, until it becomes just too opaque or inconvenient to change provider.

ayayay

Buried in the FCA report in the annex is a model showing how pricing is likely to change following the FCA efforts. The model shows that those who switch most years ie most MSE readers will pay significantly more. Why are the FCA not being upfront about this? Effective competition depends upon a critical mass of consumers shopping around to keep suppliers competitive. I spend time each year shopping around, why should the lazy who can’t be bothered expect to freeride and benefit from my efforts to keep the insurers competitive. 

convolvulus

What is to stop insurers copying the Savings Accounts strategy? This year's star buy is left to wither on the vine in subsequent years, to be replaced by a shiny new product with a different name next year. So of course the old product is still available, and offered at the same price to new and renewing customers alike. But in reality new customers, even via the aggregations, are being scooped up on the shiny new package, and the auto-renewals are left paying the ever inflated price on the old product.

Certainly the energy market is following that strategy, and they have a pretty one-dimensional product.