The regulator’s proposals to end unfair pricing practices have raised serious concerns in some quarters

For the average squaddie or sailor on an overseas posting, it’s understandable that insurance renewals won’t be top of their mind.

The ability to use continual card authority to pay for cover by direct debit works for such individuals, said Neil Bresler, managing director of Kent-based broker Cherish, who has been dealing with the insurance needs of service personnel for more than 30 years.

However this avenue could be cut off if the FCA (Financial Conduct Authority) pushes ahead with proposals, outlined in a recently published consultation paper, to ban auto-renewals of insurance policies.

Other customers, who are involved in more humdrum activities than a tour of duty on a nuclear submarine, may also find themselves in trouble if the FCA went ahead with the idea.

Many drivers could find themselves committing a criminal offence if they don’t have insurance. Ditto homeowners, who may in breach of their mortgage agreement if their home cover lapses.

“To suddenly move the goalposts and say you must have instructions from the customer before renewal is prejudicing customer benefit,” said Bresler.

“Customer detriment should be the FCA’s driver: making people go uninsured doesn’t make any sense.

“Direct debit is how the modern world works,” he said, adding that banning auto-renewal could significantly increase handling costs.

These concerns have prompted a warning by Biba, in its response to the FCA consultation paper which has been seen by Insurance Times, that banning auto-renewals threatens to cause ‘significant harm’.

String of remedies

The mooted auto-renewal ban is one of string of remedies proposed in an FCA consultation paper that are designed to tackle the problem of so-called dual pricing, whereby long-standing customers tend to pay more for insurance than their less loyal counterparts. The FCA has said that it is due to publish its final report by the end of this month.

Another proposed remedy, which would introduce mandatory auto-switching into the insurance market, should be approached with ‘extreme caution’, said Biba.

Iain Sawers, an insurance partner at solicitors Pinsent Masons, points out that price is only one characteristic of an insurance product.

“The problem is what is an equivalent deal: very often providers will have products which evolve over time. It may be a cheaper product but it may not offer the same level of cover. It’s difficult to see how that (proposal) would be implemented in practice.”

As for the FCA’s suggestion that everybody should renew their policies on the same day to boost public awareness of the process, Biba warns that this approach would create an ‘operational and resourcing nightmare’ forcing most insurance employees onto ‘zero hours contracts because they would not be needed much of the year.

Even Citizens Advice, which was chiefly responsible for pushing the problem of dual pricing onto the FCA’s agenda, sounded unimpressed in its response by the remedies that the regulator has put forward.

Narrowing gap

Meanwhile Consumer Intelligence, which supplies the FCA with feedback from customers about the prices they pay for home and motor insurance, said that this analysis shows that the gap between the prices of renewal and new business has narrowed over the past year.

Sawers said that this narrowing reflects the influence of the joint ABI/Biba guidance principles on dealing with long-standing customers, which came into force in 2018.

Biba said that 92% of its member brokers are aware of the guidance with 86% having either implemented or is in the process of doing so.

“The industry had been taking steps in advance of whatever comes out of market study,” said Ian Hughes, CEO of Consumer Intelligence, pointing to initiatives taken by the likes like of Aviva and AXA.

It also reflects the wider hardening in the market, he said: “You can afford to put some of the rate through at the new business end if you are able to get a better premium at the front. If the front end is going up, so you don’t need to hike rates at the back end.”

Hughes sees growing concerns about the FCA’s recently introduced SM&CR (Senior Managers and Certification Regime), which increases senior managers’ personal liability for business practices that are detrimental to customer, as another factor

“If you have created a culture that has adversely affected certain groups of people, it’s a very difficult question.”

“If you have created a culture that has adversely affected certain groups of people, it’s a very difficult question.”

Ian Hughes, Consumer Intelligence

The improvements already trickling through in the market, combined with a growing awareness of the risks that the more radical remedies may entail, may push the FCA towards a more incremental approach. An example could be the regulator’s proposal that auto-renewal should be made something that customers explicitly opt into, which wins favour with Biba.

Sawers suspects that the FCA may also be inclined to toughen up its rules to crack down on what is known as ‘price walking’, the practice whereby insurers gradually ratchet up prices over many years.

Dealing with the problem in this way would be “relatively straightforward” compared to legislative changes that inevitably take time to get through Parliament, which the FCA’s more radical mooted reforms would require, he said: “It may be more appealing for the FCA to see if it can do things under legislation by changing its rules.”

And the industry should see the opportunities that cultivating a more loyal customer may delver, said Hughes: “Where companies have not been putting in rate hikes, they (customers) will stay because they’ve got better things in life to do than shop for car insurance.”

However in a politically populist climate, where regulators face pressure to prove they are on customers’ side, the industry should nevertheless be on guard for draconian options. Hughes said: “Some of the biggest players have woken up but it’s not a done deal yet.”