Around 6 million insurance policyholders pay high prices and are not getting a good deal on their insurance according to a report out today by the Financial Conduct Authority.
The home and car insurance market is singled out by the Authority who say pricing in these markets leads to consumers who do not switch or negotiate with their provider paying high prices for their insurance.
If those customers paying high premiums paid the average premium for their risk they could save around £1.2 billion a year. This affects all types of customers. The FCA estimates this includes 1 in 3 people who are potentially vulnerable.
The FCA found that Insurers often sell policies at a discount to new customers and increase premiums when customers renew, targeting increases at those less likely to switch.
Longstanding customers pay more on average, but even some people who switch pay higher prices.
From the FCA’s consumer research, 1 in 3 consumers who paid high premiums showed at least one characteristic of vulnerability, such as having lower financial capability. For consumers who bought combined contents and building insurance, lower income consumers (below £30,000) pay higher margins than those with higher incomes.
People who pay high premiums are less likely to understand insurance or the impact that renewing has on their premium.
Most firms, when setting a price, include their expectations of whether a customer will switch or pay an increased price. This is not made clear to the customer.
Firms engage in a range of practices to raise barriers to switching and Many consumers who switch or negotiate their premium can get a good deal.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA, commented:
‘This market is not working well for all consumers. While a large number of people shop around, many loyal customers are not getting a good deal. We believe this affects around 6 million consumers.