‘Trussst in me’: Like Kaa, the devious snake in The Jungle Book, insurers are accused of preying on customers’ trust
For the past six months, I’ve been digging my tentacles into the insurance industry’s prickly underbelly. A weird mental image? Yes, but bear with me – there’s method in my madness.
In a nutshell, I’ve been trying to assess whether the industry is playing fair over new rules imposed upon it by the country’s financial regulator. Rules principally designed to ensure loyal customers – who religiously renew their home or car policy without a fuss – are no longer ripped off by greedy insurers. That they get a fair deal on a par with the prices new customers pay, are not paying a ‘loyalty’ premium for failing to shop around every year, and are no longer being exploited by firms they trust.
The more I have dug, the more frustrated I have got. I know in my heart that some insurers are not adhering to the new regime, but proving it beyond doubt is nigh impossible. Insurance companies are slithery organisations, brilliant at defending their own business interests and superb at denying wrongdoing.
‘You’re not comparing like with like, Mr Prestridge,’ they tell me when I show them evidence that an existing customer has still been able to get cheaper insurance from them as a new customer – something the rules are meant to stop.
‘Jeff, Mr Jones got a cheaper quote as a new customer because he failed to disclose a smashed windscreen claim five years ago.’ Hmm.
‘Jeffrey, Mrs Biggins was able to obtain a better deal as a new customer because she got a quote using a different business channel from the one she used when first joining us.’ Really? How utterly confusing.
Excuses, excuses and more excuses – they’re excellent at coming up with them. Slippery as a snake.
Yet it seems my persistent prodding of the industry’s underbelly is beginning to bear fruit. Last week, the Financial Conduct Authority told me it had asked insurers and insurance brokers – between 60 and 100 of them, I understand – to prove to them that they are no longer discriminating against loyal customers.
Some of the companies targeted in its probe are those whose business practices I have questioned in recent months. Others are believed to have been included as a result of letters from MPs (on behalf of constituents), correspondence sent directly to the FCA by angry policyholders and appeals by consumer groups. The FCA even congratulated us on the work we have done this year (see opposite), a rare accolade which I will gladly take to my grave. Hurrah. OK, not a giant step forward, but it’s progress.
THE BACKDROP OF ‘A LOYALTY PENALTY’…
The new regime governing the pricing of car and home insurance has been a long time coming. Indeed, it took some super campaigning from the likes of the marvellous Citizens Advice and this newspaper to prompt the Financial Conduct Authority into action.
Previously, insurers adopted dual pricing on car and home cover. Loyal customers were bizarrely penalised for staying with an insurer year in, year out with ever higher premiums. Yes, penalised, not rewarded. Perverse? Yes. But that’s insurance for you. Never trust an insurer.
Why the penalty for loyalty? It wasn’t a result of these customers always making claims, but because insurers knew they were loyal – and they had a pretty good idea that nine times out of ten they wouldn’t bat an eyelid if their premium increased at renewal. These loyal customers, many elderly, trusted their insurer to do the right thing by them. How wrong they were. Who says loyalty pays?
This fleecing of loyal customers enabled insurance companies to go aggressively after new business – a financial yardstick used by City analysts to judge the success (or otherwise) of individual companies.
Some of the fat profits made from loyal policyholders were used by insurers to offer cut-price cover to new customers. In some instances, it meant a 30 to 40 per cent price difference between the cost of cover for a customer of six or seven years standing and someone buying the identical plan as a new policyholder.
According to Citizens Advice, home insurance companies made 100 per cent of their profits from the loyalty penalty. Five years ago, I wrote a series of articles on the heavy price loyal customers were paying for their car and home insurance. Readers contacted me in their hundreds to complain that their loyalty had been financially abused.
It was an apposite campaign which drew praise from all quarters. I even won an award a year later at the prestigious British Journalism Awards. Ironically, the award was sponsored by an insurer, albeit one that supported the idea of treating all customers fairly.
Then, in September 2018, Citizens Advice submitted a ‘super complaint’ to competition regulator the Competition & Markets Authority, calling for it to investigate the £4billion-a-year ‘loyalty penalty’ – not just in insurance, but also across the mortgage, savings, mobile phone and broadband markets. The CMA agreed with the charity’s concerns, triggering the FCA’s intervention in the insurance market.
Regulator’s praise for us as it turns up the heat on rogue firms
This is what the Financial Conduct Authority told us about its work – and our campaign:
‘We are pleased to see some early, positive signs about the effectiveness of our reforms in tackling the loyalty premium in general insurance. But, we do recognise that while real renewal costs are down across the industry, there will be instances where costs have increased for some customers.
We are in the process of testing data from insurers of various sizes to make sure that they are meeting their obligations to get rid of the discrimination against loyal customers, along with understanding where increases do occur that they are fair, in proportion with macro-economic conditions and changes in operating costs.
We will take decisive action where we uncover evidence that our regulation has been deliberately ignored or that companies are unable to show they have acted in the interest of their customers. We are thankful for the market intelligence provided to us by various parties, including The Mail on Sunday, along with many customers, which has greatly assisted us when conducting this industry assessment.
We are determined that our new regulations will stamp out bad practice against loyal customers and require firms to attest annually that they are acting in consumers’ best interests or face serious consequences.’
…AND WHERE WE SHOULD BE NOW
From the start of this year, insurers have been banned from quoting existing customers a higher premium for renewing their home or motor insurance policy than they would pay as a new customer.
The FCA says its new rules will save loyal customers £4.2billion in premiums over the next ten years.
Six months into the new regime, it points to statistics indicating that car insurance premiums fell overall by five per cent in the first quarter of this year as evidence that its rules are working. For the record, these were figures compiled by the Association of British Insurers (I don’t doubt their veracity, but I point out the source because I thought you might be interested).
Yet when we have written on the new rules – in January and last month – we have been overwhelmed with correspondence from policyholders who don’t believe the insurance market of 2022 is any better than 2021. For them at least, premiums are still rising, even though some (not all) are loyal customers.
We have also heard from numerous policyholders who have bought cheaper cover (or been offered it) by posing as a new customer when it was time to renew their insurance.
This simply shouldn’t happen in the new world of insurance, but the regulator has given insurers so many get out of jail free cards on this crucial issue that it’s virtually impossible to identify clear rule-breaking. For example, insurers are allowed to vary quotes for identical cover according to how a policy is bought – direct, through a broker, a price comparison website, online or over the phone. This enables some policyholders to get cheaper quotes from their provider than the offered renewal premium by buying through a different sales channel to the one they used originally.
Last week, we presented the FCA with a dossier of correspondence from MoS readers on the issue of car and home cover pricing. It included at least 11 examples of potential rule breaking – all of which have (understandably) been vigorously contested by the insurance companies involved. We know the FCA has looked at these cases – and we believe some of them have been taken into account by the regulator in assessing which companies to focus on in terms of checking whether they are complying with the rules.
The FCA has told the MoS that it is not frightened to impose heavy fines on persistent rule breakers – even suspend them from doing new business. Strong words. But, my suspicion is that insurers are currently running rings round it. As one reader put it to me: ‘Insurance companies are using this [the new rules] to feather their own nest.’
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