The competition watchdog unveiled its robust measures to tackle unfair treatment of loyal customers,l but how does the industry feel about it?
The Competition and Markets Authority (CMA) unveiled a radical plan to crackdown on the financial services pricing loyal customers more aggressively than new ones.
The CMA pointed out insurers and brokers as particularly guilty of this, and that they show the very worst behaviours.
The reforms will include tergeted price caps to protect the most vulnerable hit by loyalty penalties, naming and shaming those companies who hand out loyalty penalties, and looking into beefing up consumer law, allowing customers to leave contracts easier.
CMA chief executive Andrea Coscelli said: ”Our work has uncovered a range of problems which leave people feeling ripped off, let down and frustrated.
”They shouldn’t have to be constantly ‘on guard’, spending hours searching for or negotiating a good deal, to avoid being trapped into bad value contracts or falling victim to stealth price rises.
”Millions of loyal or vulnerable customers are being taken advantage of each year by firms – and end up paying much more than they should do. This must come to an end.”
Christopher Woolard, executive director of strategy and competition at the FCA, commented: ”The treatment of long-standing customers remains a priority for the FCA. We have worked closely with the CMA since they received the super-complaint. We will continue to do this. It is important that this issue is tackled and harmful practices are stopped.
”We expect firms to look after the interests of all customers and treat them fairly, whether they are new or longstanding. Where we have concerns about conduct by firms, we will explore all options to address this using the full range of our powers.”
Huw Evans, director general of the Association of British Insurers said that while ”three quarters of insurance customers benefit from shopping around,” he accepts that there needs to be ”a better balance between the deals offered to new consumers and the interests of long-standing customers.”
He also stated that the insurance industry has already put into action methods of fixing this problem.
He said: “Insurance is the only sector of those looked at by the CMA to have already taken voluntary, industry-wide action to tackle the concerns being raised. The insurance industry is committed to working constructively with the regulators as they take this forward.”
Gone on “for too long”
Kevin Gillett, managing director of Better Health Insurance Advice said he welcomes the intervention, insisting the unfair treatment has gone on for too long.
He said: ”We welcome today’s intervention from the Competition and Markets Authority. For too long, millions of consumers have unwittingly faced financial penalties for their loyalty to a range of financial service providers.
“Annual price hikes, costly exit fees and complex policies all impact consumer freedom and we hope today’s news acts as a wake-up call for a number of industries.
”Within our own market, our customer saves an average of £553 per annum when they switch their private medical insurance policy with Better Health Insurance Advice, so it is our hope that other organisations look at ways of taking a more customer-centric approach into 2019.”
What about comparison websites?
However, Tony Tarquini, director of insurance, EMEA at Pegasystems believes the intense criticism that insurers receive is unfair when you consider the economics of selling household insurance in the UK.
He said: “New customers-only pricing is the sole way for insurers to secure customers via comparison websites who drive demand for lowest possible price. This means insurers lose money in the first year of the deal and try to recover the loss in later years.
”If everyone constantly switched insurer to get the cheapest price, firms would never make a profit and have the funds to invest in their better services for customers”
While Tarquini doesn’t disagree with the reforms, he does question why household insurers have been singled out in the industry, while other parties, namely insurance comparison websites, also play a bigger part in the practice.
“Insurance comparison sites encourage churn through marketing activity,” he said. ”However, many only compare on price of cover, omitting important details about what’s not included but would be reasonable to expect.
“I am not aware of any insurance comparison site that allows consumers to compare policies by value for money and not price alone. If insurance brokers are subject to Know Your Customer (KYC) regulation examining the appropriateness of cover, why shouldn’t insurance comparison websites be too?
”Regulators need to step in and balance the service provided by brokers against the lowest possible price that some people look for by going through comparison websites. They also need to examine the appropriateness of cover under the existing KYC regulations when examining comparison sites.”
Don’t tar all insurers with the same brush
Ian Hughes, chief executive for Consumer Intelligence, said: “It is important that the insurance industry protects vulnerable customers and insurers need to do more to explain why prices increase. One common theme emerging from our research with customers is that insurers are not clear about why they change premiums and that is leading to confusion.”
However, he said that while some insurers and brokers are guilty of this practice, not all are.
He said: “Not all insurers should be tarred with the same brush and some are trying really hard to treat customers fairly. The issue is that insurance is complicated and customers with the same insurer can see prices rise while others see price cuts. Changes in pay-outs and claims are the main reasons driving premiums.”
He then explained that Consumer Intelligence had looked into this issue itself.
“Over the last few months we have examined hundreds of renewal notices and spoken to thousands of customers and on the whole the vast majority of home and motor insurance customers shop around every year and check their premiums every year,” Hughes said.
“From our extensive research, based on analytics of 50,000 real insurance customers, we have demonstrated a proven link between insurance brands with strong retention rates and high levels of customer engagement. We know that treating customers well drives retention, with trust and good service influencing whether a customer switches or stays.”