Protection  

Regulator launches probe into insurance premium disparity

Martin Wheatley, the regulator’s managing director, said he was in discussions with the industry and consumer organisations to see whether firms were “taking advantage” of existing consumers who do not shop around.

He was responding to concerns raised by Andrew Tyrie, chairman of the Treasury select committee, that the practice punished loyal customers and those less likely to use price comparison websites.

In a letter sent to the previous regulator, the FSA, and the Association of British Insurers in March, Mr Tyrie cited cases where premiums for existing customers had been five times higher than those available for new customers.

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In his response to Mr Tyrie, Mr Wheatley said: “We will decide what, if any, action needs to be taken once we gather the information necessary.”

Commenting on the committee’s publication of the letter on 6 July, Mr Tyrie said the previous regulator had “failed” to protect consumers.

He added: “If people are given a more meaningful choice, they are less likely to be ripped off. The committee will scrutinise closely the information gathered by the FCA.”

In his reply to Mr Tyrie, Otto Thoresen, director general of the ABI, said the organisation had written to members asking for “further information” but defended the practice of using “price differentials” to attract new business as the upshot of a competitive market.

He added: “The density of the market explains the pressure to seek new business, leading to the embedding of discount pricing for new customers. We do not believe the extreme examples you raise are a direct result of the competitive nature of the market, rather they represent a disconnect within a segment of the market.”

Mr Thoresen added that the industry would continue its work to improve older customers’ access to competitive deals.

When asked when the results of the investigation would be published, an FCA spokesman said: “There are still some hoops to jump through before we even get an agreed timescale, but we’re hoping to say something further later this year or early next year.”

Adviser comment:

Fiona Sharp, senior adviser for Norfolk-based Almary Green, said: “It has always been the case that ongoing factors would affect life insurance premiums. Most advisers would review the premiums to make sure they can get cheaper cover. That is just best practice.

“Premiums for income and protection and critical illness policies have gone up. But I’ve sometimes told clients that they can save £5 a month on premiums by taking out a new policy, and they find it too much of a hassle.”