Insurers admit renewal price rip-off
Insurers have admitted using out-dated pricing methods to rip off customers who fail to shop around for better deals.
The admission came in a series of letters between the Treasury Select Committee chairman, Andrew Tyrie MP, the Association of British Insurers and the now defunct regulator the Financial Services Authority.
Penalise the elderlyTyrie - who has published the letters today – wrote in March detailing renewal prices as high as five times the premium quoted to new customers. He described the scandal saying: "Such practices appear to penalise long-term loyalty and are to the detriment of those less able to access comparison resources, particularly the elderly."
Tyrie demanded to know what the insurers' response was and asked the regulator what it was doing about the problem.
Market disconnectThe insurer's boss Otto Thoreson insisted renewal premiums five times higher than new quotes were "not viewed as normal and appear to relate to a very specific part of a legacy market". He said they came from old home and contents policies originally sold through banks and building societies using a tariff structure long-since replaced for new business.
He said: "We do not believe the extreme examples you raise are a direct result of the competitive nature of the marker, rather they represent a disconnect within a segment of the market." He insisted insurers encourage people to shop around and the market was one of the most competitive in the world.
Toothless regulatorThe letters also expose the weakness of the former regulator the FSA. Its then managing director, Martin Wheatley is now the chief executive of the replacement regulator the Financial Conduct Authority.
His letter as FSA boss admits the regulator was toothless and "has not carried out any sector-wide monitoring of how insurers price differently for new and existing customers". But he said the new regulator, the FCA, would do this. The FCA will also have more power to stop misleading promotions by insurers.
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