The FCA has just launched an investigation into home and motor insurers on pricing. Tony Tarquini, Director of Insurance, EMEA, Pegasystems believes the intense criticism that insurers receive is unfair when you consider the economics of selling personal insurance in the UK.
He comments: “New customers-only pricing is the sole way for insurers to secure customers via comparison websites who drive demand for lowest possible price. This means insurers lose money in the first year of the deal and try to recover the loss in later years, so loyal customers pay more. If everyone constantly switched insurer to get the cheapest price, firms would never make a profit.”
While Tarquini doesn’t disagree with the FCA’s decision to investigate dual pricing, he does question why insurers alone should be subject to investigation, while other parties, namely insurance comparison websites, also play a key role in the practice.
He notes: “Insurance comparison sites encourage churn through marketing activity. However, many only compare on price of cover, omitting important details about what’s not included but would be reasonable to expect – for example, a replacement vehicle with motor insurance. Insurance cover listed on a price comparison website without it should not even be an option.”
He continues: “I am not aware of any insurance comparison site that allows consumers to compare policies by value for money and not price alone. If insurance brokers are subject to Know Your Customer (KYC) regulation examining the appropriateness of cover, why shouldn’t insurance comparison websites be too? The FCA should balance the service provided by brokers against the lowest possible price that some people look for by going through comparison websites. The regulator should examine the appropriateness of cover under the existing KYC regulations when examining comparison sites.”