The FCA’s report could cause an industry shake-up with many customers turning to challenger brands 

Insurtechs have backed the need for transparency after the FCA released its report on dual pricing last week.

It follows the report highlighting that people are allegedly overpaying on their insurance policy every year.

Jimmy Williams, chief executive and co-founder of insurtech Urban Jungle said that the FCA’s report is the “biggest sign yet” that it is willing to take “bold action to address loyalty pricing, and soon”.


Williams explained: “First, customer prices would almost certainly go up significantly for the regular switchers. The loss-leading prices that insurers currently offer through comparison sites are largely funded by over-charging loyal customers, so this practice would have to end.

“Second, it may drive a big industry shake-up. When customers find out they’ve been being over-charged for years they may switch en masse, and we might see profit warnings from among the big insurers. The comparisons sites may also be significantly affected as a big flattening of prices means there is much less incentive to switch insurers regularly. We’ve already seen the most forward-thinking comparison providers make moves to address this.

“Third, it may well open the door to a number of challenger brands like ours who have taken a stand against loyalty pricing early and have a clear message on it. This increased competition in the sector is ultimately what the FCA is looking for.”

Signals action

Addressing dual pricing is an area that trade body Insurtech UK has long been championing.

Its deputy chair and founder of Worry + Peace, James York told Insurance Times that he was disappointed to see the extent to which people in the UK are allegedly overpaying on their insurance every year. 

He said that ”£1.2bn of overpayments is quite frankly a huge number” but “price alone is not the only consideration when buyers shop around, it is no doubt critical to many”.

Back in November last year, when Insurtech UK launched dual pricing was highlighted by its members as “one of the primary measures to consider”.

York said that the trade body has discussed dual pricing in meetings with the FCA and while it is high on the regulator’s agenda, the report signals action is needed now to address all the possible causes of this practice.

“Our alliance is on a mission to reinvent the sector by putting the customer first, but these reports clearly do not reflect that ethos.

”Through their pricing conduct, some insurers are causing further damage to the reputation of the industry. The resulting mistrust may drive even more buyers to shop around through the narrow lens of price alone,” York added.

‘Price walking’

New chief executive at Wrisk, Nimeshh Patel agreed that it was “great to see the FCA calling out the needs for transparency and fairness in general insurance pricing”.

“The FCA has concluded that a lack of transparency around how firms set prices is unlikely to help consumers make informed decisions,” he said.

Patel explained that this was because “Insurance is still largely seen as a grudge purchase, with confusing, one-size-fits-most policies as the norm”.

Wrisk believes that transparency is vital if in insurance is to truly serve customers and should begin when a customer first starts exploring taking out a policy through “providers asking fewer questions and giving customers feedback on how their answers impact pricing”. The insurtech does this by using subscription bases policies to give “full visibility”.

“The FCA has also highlighted that automatic price rises are penalising loyal customers. Beyond proposed measures to restrict such ‘price walking’, it’s important to highlight that the traditional annual renewal cycle itself means consumers aren’t able to access cover that suits their changeable lifestyles and budgets.”

Questionable tactics

Gavin Sewell, chief executive at Honcho, also agreed: “For too long consumers have been at the behest of some very questionable tactics within this market, and it simply has to stop. We’ve been studying the car insurance market for many years and have been watching with outrage as motorists struggle to get a fair deal on their insurance, at the hands of some of the biggest names in insurance.

“There’s a real need for transparency amongst the UK’s price comparison websites in particular, who are known to charge insurers as much as £60 commission per policy sold, a fee which is usually passed onto the consumer without their explicit knowledge, and that’s aside of the questionable contractual arrangements that they are known to impose on insurance providers which can be against the interests of consumers.”

In honcho’s latest research, it found that 61% of drivers between the ages of 17-24 believe that price comparison websites offer the best price and just 11% approach other insurers directly for a quote when shopping around for cover.

Bank of mum and dad

Sewell told Insurance Times: “It’s hugely disappointing to find such a high percentage of the nation’s young drivers are settling for the first quote they find, when they’ve plenty of other financial burdens to bear in the current climate.”

The research also found that younger drivers are paying an average of 149% more than the national average on their car insurance, this means that 1 in 3 are “leaning on the bank of mum and dad to stay on the roads and many feel impeded professional and socially as a result”.

“This is beyond unjust and it’s high time the industry was held accountable and the public made aware of how they can protect their hard-earned cash, Sewell added.

“Whilst organisations such as ours are leading the charge into bringing transparency and fairness to insurance, we’d call on all organisations in the sector to look very carefully at their core operating principles and ask themselves whether they actually have consumers at the heart of their focus. The time for change is long overdue.”

Meaningful change

While James Blackham, chief executive and co-founder of insurtech By Miles, said:“Time is running out for the regulator to make meaningful change and save the industry from itself. We must put in place the same measures that every other regulated industry has - so insurers can’t renew someone onto a price that is more than a new customer would be offered.

“We must bring an end to the systematic exploitation of drivers. It’s unfair, it doesn’t make sense and it’s vulnerable people in society that suffer the most.”

Blackham explained that the insurtech has put treating customers fairly at the heart of its business, he cited the policy it has built that offers “fairer mileage” to motorists by only charging them for the miles they actually use. 

“We also have plans in the pipeline to make car insurance even fairer for the vulnerable members of society, however it’s difficult to compete when insurance companies much bigger than us are taking advantage of people, unchecked, on such a massive scale,” he added. 

Not isolated to insurance 

Louise Birritteri, chief executive and founder of sharing economy insurance specialist Pikl, agreed:”It’s very important as an industry that vulnerable customers are safeguarded from pricing practices which could see them adversely affected by price optimisation techniques.”

But she said that she thinks its also important to recognise that ”pricing optimisation and dual pricing is not isolated to the insurance industry or UK”.

”It is found in almost all digital markets worldwide, from the sale of train tickets, hotels rooms, mobile phones and products purchased on websites like Amazon and requires wider debate across government and commerce about these types of techniques, Birritteri continued. 

”The insurance market in the UK is one of the most competitive market places in the world and the current complexity of techniques deployed by both insurers and brokers reflect this complex nature. It’s important that the FCA continues to consult with the market to avoid unintended consequences for consumers which small change to these techniques could potentially give rise to”