Differential Pricing: Motor and home insurance industries

On 21 November 2019, the Director General of Financial Conduct at the Central Bank of Ireland, Derville Rowland, issued a Dear CEO letter  in respect of differential pricing in the motor and home insurance industries.

Differential pricing in this context is the practice of an insurer charging different premiums to customers it has assessed as having the same risk profile, in cases such as one being a prospective/new customer and another being an existing customer. The Central Bank is concerned that this practice poses a potential risk to consumers and intends to review it for consistency with the Consumer Protection Code 2012 (CPC). 

The Central Bank intends to commence its review in January 2020 and has published its initial terms of reference for that review as a schedule to the Dear CEO letter.

What this means

The intended review has already attracted widespread media, consumer and insurer attention. The consumer angle is well understood and captured in the media but arguably less so the insurer perspective. The Central Bank is concerned to ensure that insurers and all other regulated entities better factor the consumer into their product design and decision making processes.  It has taken a number of enforcement actions against regulated entities for CPC breaches and has signalled its intention to ramp up its consumer-centric enforcement activity in 2020. 

Interestingly, the recent Dear CEO letter focuses on the requirement for  boards to ensure that treating customers fairly forms an integral part of their firms' corporate culture.  As a concept, culture is by now well understood across the insurance industry but what is often more difficult to capture is how exactly a regulated entity can shape its culture. Board members, including independent non-executive directors must also be in a position to demonstrate to the Central Bank, if called upon to do so, that a culture of treating customers fairly has been embedded in the firm. 

For more information please contact any of the partners in A&L Goodbody's Insurance Practice or Sinead Prunty, Knowledge Lawyer – Financial Regulation. 

Date published: 5 December 2019