The Dual Pricing Paradox
Paul Thompson, CEO Cavere Group, writes a regular column in Mortgage Introducer Magazine.
Over the last few months we’ve seen pressure mounting on the FCA to take action on dual pricing. In June it appeared the FCA was indeed strengthening its stance to tackle dual pricing with a suggestion of measures such as fines from the Competition & Markets Authority (CMA). However, others have warned that by axing dual pricing home insurance premiums could rise by 22%. So it appears we have a bit of a paradox on our hands.
Analysts from JP Morgan have said if the FCA demands insurers offer the same price to all, then firms would ‘clearly be loss-making’ unless they hiked premiums for new customers. They suggested the FCA could take less dramatic actions such as capping prices, increased premium transparency, and enforcing C-Suite level accountability for pricing practices.
Whilst I am all in favour of the regulator jumping in to sort out aggressive dual pricing tactics once and for all, I think measures such as price capping and the like are so full of conflicts as to make them difficult to both implement and manage. I don’t think the regulator would be keen to get involved to such a degree, and I don’t think it would be helpful in the long run, either for insurers or customers.
I do however agree with JP Morgan’s prediction about premium increases. It is a mistake to believe that an intervention from the regulator will result in lower premiums for consumers. Instead we will see fewer cheap deals and introductory offers available, and prices are more likely to rise towards the highest premiums rather than the highest coming down to the lowest (the age discrimination act in car insurance is an example of this – female drivers now pay more rather than the male drivers paying less).
So what does this mean for brokers and advisors?
My belief is that a crack-down on dual pricing will create a greater opportunity for intermediaries to compete more equitably on price. Realistic pricing of risk will drive an end to premium fluctuation, drive down focus on price, and drive up the customers need for trusted advice. An advisor or broker who can get their customers the right cover at the right price from the outset, so the premium doesn’t go up or even reduces at renewal will be valued.
The next few months will no doubt see the pricing practices of insurers come under even closer scrutiny so intermediaries need to get prepared. Make sure you are working with a GI provider who has good relationships with insurers that have a comprehensive and documented fair pricing strategy, as well as those who offer the flexibility to consider special circumstances within their pricing strategies.