Insurance undertakings and insurance intermediaries operating in the Irish market should carefully consider the short and longer term implications to them of the Central Bank of Ireland's (CBI) long-signaled Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Insurance Requirements) Regulations 2022 (the Regulations), which were published yesterday - access the Regulations here.
The CBI has also published a Differential Pricing Q&A to assist insurance undertakings and insurance intermediaries’ understanding of the Regulations (the Guidance).
While the Regulations and Guidance address a range of related matters, the headline item is that from 1 July 2022, insurance undertakings and insurance intermediaries will not be permitted to charge consumers, who are on their second or subsequent renewal of a home or motor insurance policy, a premium higher than they would charge equivalent year one renewal consumers.
The practice of differential pricing and its impact on consumers has been a much discussed topic in Ireland, the UK and further afield over the last number of years. Differential pricing occurs when customers with a similar risk and cost of service are charged different premiums for reasons other than risk and cost of service.
In an article last July, we considered the outcome of the CBI's differential pricing review that had moved though a number of phases in the previous 18 months. While the majority of the proposals set out in the CBI's final report and summarised in that article are reflected in the Regulations, some potentially problematic proposals regarding disclosure of what had been termed "new business discounts" have not.
Impact of the Regulations
The key requirements are as follows:
Price walking: Price walking is the practice of insurance undertakings and insurance intermediaries charging consumers higher insurance premiums after first renewal than they charge equivalent consumers renewing their policies for the first time. With a focus on this practice at a systemic rather than individual level, regulation 4(1) requires an insurance undertaking or insurance intermediary not to set a subsequent renewal price that is higher than the equivalent first renewal price.
Pricing practices and processes: The Regulations require all insurance undertakings and insurance intermediaries to carry out an annual review of their home and motor insurance pricing policies and processes, to confirm that they do not systematically discriminate against consumers based on tenure or systematically exceed the price charged to first time renewal consumers in respect of renewals for longer tenure consumers.
Auto-renewal of insurance policies: Effective 1 October 2022, the Regulations require insurance undertakings and insurance intermediaries to allow consumers to cancel auto-renewals of non-life insurance policies free of charge, at any time during the duration of the policy. Insurance undertakings and insurance intermediaries must share certain written information with the consumer about the right to cancel.
Over the coming weeks, we will be working with our clients to assess the less obvious impacts of the Regulations on their pricing practices, models and governance processes.
Insurance undertakings and insurance intermediaries have been considering the impact of these long-signaled changes for quite some time. Now that the Regulations have been published it is time to assess planned changes to pricing models and practices and governance processes against the text of the Regulations and with the benefit of the (non-binding) Guidance.