Insurtech sector backs FCA’s ‘price walking’ ban as move towards restoring trust

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The insurtech sector has welcomed the FCA’s proposals on banning ’price walking’ and sees it as a move towards restoring trust in the insurance industry

The insurtech sector has backed the FCA’s move to ban ’price walking’ as a step towards gaining customer’s trust.

The FCA revealed in its pricing practice report yesterday that both new and existing insurance customers would be charged the same price, and that the loyalty penalty would end.

Niall Barton, chair of Insurtech UK told Insurance Times: “The FCA confirmed today what has been known in the insurance industry for a while, customers have not been treated fairly.

“Dual pricing has done a lot of damage to consumer trust in insurance, and as an organisation that represents insurtech startups who place the customer experience at the heart of their proposition, we welcome the steps that the FCA is taking to remedy this practice and to rebuild consumer trust in insurance.”

Insurtech UK will seek to respond to the FCA’s request for feedback on the proposals.

Saving £3.7bn

Others in the insurtech sector have also backed the FCA’s move to end ‘price walking’, Munich Re-backed insurtech – Urban Jungle said that the action could save policy holders save £3.7bn a year.

‘Price walking’ is where an insurer automatically increases the policy renewal price without any changes to the cover, even if no claims have been made. The practice means loyal customers typically pay more than new ones.

Jimmy Williams, chief executive at Urban Jungle believes price walking is wrong and is supporting this action to curtail it.

He said: “Price walking is completely systemic in the insurance industry. Many firms are doing it and we think it should stop so we welcome the FCA’s call.

“The reason it happens is that price comparison websites are so important to insurers. The only way to win on price comparison is to be the cheapest. It’s rational to do everything you can to be the cheapest provider at minute one, and layer on a load of hidden costs and price increases later.”

James Blackham, chief executive at By Miles, agreed that the move was a “huge win” for consumers and that it could restore “trust, transparency and fairness” in the insurance industry.

He continued: “We applaud the strong measures and the detailed report that fully considers all the consequences set out today. The FCA must now act quickly to put these new rules in place to end ‘price walking’ and the loyalty penalty for good.”

For example, By Miles has offered a “best price promise” since its launch to ensure that loyal customers get the same price or better on their renewal than new customers.

By Miles customer case study

Guy, 47 works in telecommunications and lives in Hertford, said: “From my original quote I was set to save £316 compared to my old policy, but depending on how much I drive over the next few months, I could save much more.

“I found out about By Miles purely by accident. I got a renewal for my car insurance in April and depressingly and uniformly - there was a massive increase and I just got fed up with it and actually for once started doing a bit of research. I was on Martin Lewis’ website, MoneySavingExpert, and they recommended By Miles. I was reading up and I showed my partner and said: ‘This is too good to be true - this can’t be right. There’s a mistake there’, but I looked into it and saw who you’re underwritten by and just thought it looked like a safe bet. It’s been a revelation, it really has.

“I was with QuoteMeHappy last year and prior to that, Admiral. I paid Quote Me Happy £675 and they wanted me to renew at £716. If you’re with a provider and nothing happens in that year, you expect a reduction.

“Because it’s done by [the mile], we actually think about usage of the car now. Instead of trying to do too many journeys, we do condense them down. Do we really need to go out today? Can it wait until tomorrow, can we turn two journeys into one?”

Change could be profound

Williams warned of other bad practices that may rear their head, he added: “The change caused by this could be profound. Price comparison websites could be heavily impacted as, suddenly, the amount you could save from switching your insurance goes down dramatically. So, people might switch less often.

“For insurers themselves, it should make price competition much more transparent which is, in itself, a good thing. However, I suspect insurers will come up with even more innovative ways to rip their loyal customers off.

“The most likely to me seems that they will give away ’free’ but meaningless cover to more loyal customers and use that to justify the difference between new quotes and renewal ones.”

Greater transparency

In addition to this, Williams has called on the FCA to ensure there’s greater transparency in the industry. He continued: “The regulator still hasn’t banned hidden fees, or large interest payments for paying monthly, so you should watch out for those, too.

“We’d like to see the regulator issue a ban on cancellation fees. They are a clear and obvious barrier to switching, and typically bear no relation to the cost of processing. Urban Jungle doesn’t charge a cancellation fee on any of its products.”

Paul Williams, chief executive at Ripe Thinking has also backed the move towards banning ’price walking’, although he argued that the issue with customers being charged a higher price after year one, could have been avoided. He told Insurance Times: “Transparency is key. There [were] companies out there that wanted to do the right thing, but it’s difficult in a competitive market to be the lone ranger. The regulator’s decision is good for customers in the long-run. Treat customers how you would want to be treated.”