The U.K. Financial Conduct Authority is considering a slew of "remedies" to prevent about 6 million policyholders from paying what it says amount to approximately £1.2 billion too much in premiums per year.
Releasing the interim report of its market study into the pricing of home and motor insurance, the FCA found that competition is not "working well" for consumers in these markets. The regulator said it is weighing banning or restricting practices such as raising prices for consumers who renew year on year or requiring companies to automatically move consumers to cheaper equivalent deals.
It is also considering restricting the way that companies use automatic renewals to stop practices that could discourage switching; requiring improvements in how companies communicate with their customers; and making companies publish information about price differentials between their customers.
The FCA also said it is keen to "harness the benefits of innovation in the longer term," so that general insurance markets benefit from technological developments, including open finance.
The report 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, and one in three consumers who paid high premiums showed at least one characteristic of vulnerability, such as having lower financial capability.
Among consumers who bought combined contents and building insurance, lower-income consumers, or those who make below £30,000, pay higher margins than those with higher incomes, according to the report.
Insurers incorporate into pricing decisions their expectations of whether a consumer is likely to switch or pay an increased price, although this is not made clear to the customer. They also use a range of methods to make switching more difficult.
"This market is not working well for all consumers," said Christopher Woolard, executive director of strategy and competition at the FCA. "While a large number of people shop around, many loyal customers are not getting a good deal."
The regulator plans to publish a final report and consultation on remedies in the first quarter of 2020. The FCA also said rules introduced in 2017 and aimed at pushing buyers of home, motor and pet insurance to shop around had led to estimated customer savings of £185 million per year.
