Differential Pricing - Consumer FAQ

Differential pricing in insurance premiums differentiates between customers on considerations other than the expected cost of claims and expenses. It describes a range of techniques that combine information about claims experience and expected customer behaviour, for example, the tendency to renew or shop around. Differential pricing techniques are widely used across many industries, for example airlines, hotels, telecoms and online retail sites.

We conducted the review to establish the impact of differential pricing on consumers and to understand the drivers of consumer behaviours, including how consumers engage with the insurance industry. The review also assessed the extent to which differential pricing practices lead to outcomes that are consistent with the Consumer Protection Code 2012

An insurance premium is the amount paid to an insurance provider to cover a risk for example relating to a car or home.  An insurance premium is calculated by considering a number of individual factors and combining these along with the insurance provider’s costs and a margin for profit to determine a price. These factors may be external or personal.

External factors may include the level of awards for injury claims and the cost of replacement parts for a car. Personal factors may include the type of car you drive, the age of your car, the number of bedrooms in your home and your claims history. An insurance premium may be higher or lower based on both these external and personal factors.

Insurance providers may consider customer characteristics or behaviour patterns - for example, how likely a customer is to switch provider - in calculating an insurance premium. These differential pricing mechanisms can result in higher premiums for some customers and lower premiums for others.

The review focussed on the private car and home markets. This is because of their importance to consumers and to society more generally. These products lend themselves to the application of differential pricing techniques because of the large volumes of customers, significant premiums and the levels of customer inertia associated with them. Also, these products are two of the most commonly held insurance products and account for a significant proportion of the personal insurance market.

Private car insurance is a legal requirement, with minimum cover of third party required for an individual to legally drive a private car on public roads. While home insurance is not a legal requirement, it is seen by homeowners and renters to be an important purchase, and is often required by lending institutions to secure a mortgage.

The review was divided into three phases.  Phase one of the review involved an assessment of the market to establish how insurance providers are using differential pricing.

The Central Bank issued a Dear CEO letter to insurance providers in September 2020, highlighting our initial observations, outlining our next steps and setting out our expectations of firms.

The second phase of the review involved an analysis of almost 11 million individual policy records. As part of this phase, we concluded our consumer insights survey of 5,500 private car and home insurance consumers to develop our understanding of how consumers engage with insurance providers.

An Interim Report was published in December 2020, providing a progress update on our work. It included initial observations arising from our market analysis (Phase One) and from the commencement of our in-depth data analysis and consumer research (Phase Two).

The third phase has been informed by the findings in Phases One and Two of the review, and the final findings have informed the proposals to strengthen the consumer protection framework that have been set out in in the Consultation Section of our final report.

The review found that the practice of differential pricing is widely used across the private car and home insurance markets. While differential pricing can benefit some consumers, it can cause harm, particularly if it is used to increase prices by stealth, which can result in unfair outcomes for some consumers particularly those who are unable, or less likely, to shop around or switch providers.

The review has shown that some of these practices can result in unfair outcomes for some consumers. Our analysis shows that price walking is common in both the private car and home insurance markets. We have found that the premium charged increases with tenure for both private car and home insurance customers. This means that the longer a customer remains with their insurer the higher the amount the customer pays relative to expected cost, which can be seen as a "loyalty penalty."

We found that oversight of pricing practices is lacking and this raised concerns that some firms may not be adequately considering the effect of their pricing practices on their customers. We also found that automatic renewal processes lacks the transparency to allow consumers make more informed decisions.

In addition, we found potential gaps or weaknesses in the areas of complaints resolution, vulnerable consumer processes and consumer engagement and transparency.

While consumers always have the option to shop around and switch insurance providers, currently the responsibility is on the consumer to take action by switching or negotiating a better price regularly to avoid price walking. Based on the findings of the review, we propose to ban price walking by insurance providers.

This means that, at the point of renewal, insurance providers cannot charge customers who are on their second or subsequent renewal a premium that is higher than they would charge them if they were a year one renewal customer at that point in time.

This approach would allow insurance providers to continue to provide discounts for new business customers and ensure that consumers retain the opportunity to get a better-priced premium by switching insurance providers, while removing the loyalty penalty for those who remain with the same insurance provider.

We are also proposing changes in relation to the oversight of pricing practices and in relation to automatic renewals. We will require private car and home insurance providers to review their pricing policies every year, to ensure that they review the impact of their pricing decisions on their customers. Private motor and home insurance providers will be required to review their pricing policies every year to ensure that they maintain focus on their pricing practices and the impact of such practices on their customers, while also ensuring adherence to new pricing provisions and the fair treatment of consumers. We are also proposing new requirements in relation to automatic renewals, which include a requirement for explicit consent from a customer and for the provision of further information to consumers to ensure a fully transparent process for all customers.

The purpose of the consultation is to understand the views of interested stakeholders on the measures being proposed. The consultation sets out the proposed provisions and a series of questions, seeking views on the specific issues identified. We welcome evidence to support views provided in response to the consultation. Once finalised, and subject to the views of stakeholders in response to this consultation, the proposed measures will be incorporated into the Consumer Protection Code 2012.

The consultation seeks views on our proposals to:

1. Ban price walking in the private motor and home insurance markets for personal consumers.
2. Require providers of private motor and home insurance to personal consumers to review their pricing policies and processes annually.
3. Introduce new consumer consent and disclosure requirements to ensure the automatic renewal process is more transparent for all personal non-life insurance products.

The consultation period will remain open until 22 October 2021.

Our proposal to ban price walking means that consumers who remain with the same insurance provider will no longer pay a "loyalty penalty"

This approach would allow insurance providers to continue to provide discounts for new business customers and ensure that consumers retain the opportunity to get a better-priced premium by switching insurance provider.

However, customers premiums may still vary from year to year for other reasons, including, for example, a change in their risk profile as a result of having made a claim or due to changes to an insurer’s pricing.

The Central Bank is responsible for the prudential supervision and conduct of business supervision of insurance companies and insurance intermediaries established in the State.

It is also responsible for supervising the conduct of business of insurance companies and insurance intermediaries established in other EU countries providing services to Irish consumers.

The Central Bank is not permitted to introduce prior notification or approval of proposed increases in premium rates; however, insurance providers must ensure their pricing practices lead to outcomes that are consistent with the Consumer Protection Code 2012.

The Consumer Protection Code 2012 contains a number of consumer protection measures relating to the provision of insurance products, including measures relating to the provision of information, assessment of suitability, claims handling, errors and complaints resolution. 

The European Union (Insurance Distribution) Regulations 2018 also contain consumer protection measures, including the provision of a standardised insurance product information document (IPID) for non-life insurance products, and product oversight and governance requirements.

The Non-life Insurance (Provision of Information) Regulations 2007 set out the renewal notification period for non-life insurance policies and the information that must be provided in respect of a motor insurance policy. These rules were updated in November 2019, introducing new regulations to provide greater price transparency to customers and to help them make more informed decisions when purchasing motor insurance.

These new regulations require insurers to provide individual policyholders with details of the premium paid for private motor insurance renewals in the previous year. This information must feature prominently on the same page as the renewal premium. Motor insurers must also now provide a quotation for each policy option available to the customer such as comprehensive, third party fire and theft cover, or third party only.

In September 2021, additional disclosure requirements for non-life insurance products are due to come into effect under the Consumer Insurance Contracts Act 2019.  These additional measures will require insurance providers, when issuing a renewal notice to a consumer, to provide the consumer with a schedule outlining: any premiums paid by the consumer to the insurance provider in the preceding five years on foot of the contract; and a list of any claims, including if such have been made, third party claims, that have been paid, on foot of the contract, by the insurance provider to the consumer, except, where the contract concerned is a health insurance contract.¹

Firms providing insurance products must comply with standards of fitness and probity.  They must also comply with minimum competency standards which are set out in the Minimum Competency Code 2017 and the Minimum Competency Regulations 2017.  These standards aim to ensure that consumers obtain a minimum acceptable level of competence from individuals acting for or on behalf of regulated firms when providing advice, information and certain associated activities, and include requirements to hold relevant professional qualifications and to undertake continuing professional development on an ongoing basis.

¹ This will replace the current requirements under the Non-life (Provision of Information) Regulations 2007.

Yes. You should continue to renew your insurance policy as it falls due. It is important to protect yourself should you have a car accident or should something happen in your home. Car insurance is a legal requirement if you want to drive your vehicle in a public place and home insurance is generally required by all mortgage providers as part of securing a mortgage.

If you are unhappy with how your insurance provider has dealt with your concerns/queries, you are entitled to make a complaint. The insurance provider must handle the complaint in accordance with the relevant complaints handling provisions of the Consumer Protection Code 2021 which requires firms to handle complaints speedily, efficiently and fairly.

For more information read our advice on how to make a complaint about a financial services provider.

If you are not happy with the response you receive from the firm, you are entitled to escalate your complaint to the Financial Services and Pensions Ombudsman (FSPO), who has the statutory powers to investigate complaints against financial services providers.

Please be aware that the FSPO will only consider a case once the internal complaints procedure within the firm concerned has been followed.