FCA General Insurance pricing practices market study - Which? response

Summary:

• Which? welcomes the FCA’s market study on general insurance pricing practices. We broadly support the FCA’s focus on pricing practices that could harm consumers, the fairness of pricing practices, and impacts on competition.
• The Market Study rightly has a strong focus on inertia pricing, whereby an individual consumer faces different prices depending on whether he/she is a new or long-standing customer. Which? has found evidence of inertia pricing in home insurance that we consider to be unfair as higher prices fall disproportionately on vulnerable consumers. Older customers, in particular, are more likely to have had the same policy for longer, more likely to be more vulnerable, and potentially less able to carry out effective price comparison. The FCA should consider regulation as demand-side remedies are unlikely to be sufficient to address any harm in these cases.
• As well as this, the FCA should consider issues relating to some price optimisation practices, whereby different consumers face different prices according to their individual characteristics and those price differences are beyond those that could be explained by differences in risk and hence the cost of providing insurance. We have found some evidence of price optimisation practices that could be unfair. However, this type of pricing is often difficult to identify, and the scale of the problem is difficult to assess. The FCA should therefore examine insurance firms’ pricing models, including the basis of any algorithms, to understand how these practices impact different groups of consumers including via forms of indirect discrimination.
• We support the FCA’s focus on the impact of pricing practices on competition and the specific issues it aims to examine. Additionally, we are concerned that some pricing and marketing practices can potentially have a negative impact on competition in general insurance markets. In particular, where firms have developed business models involving the use of multiple brands. This could lead to consumers comparing the prices of different brands while unaware that those brands are owned by the same company. The FCA should explore whether insurers should be required to be more transparent to consumers about the ownership of brands.