The UK insurance sector will face regulatory pressure from two sides after the financial watchdog announced on Friday it will launch a market study into how general insurance firms price home and motor insurance.
The move by the Financial Conduct Authority comes hours after the UK’s Competition and Markets Authority said it would investigate a complaint by a leading charity that consumers are being ripped off by more than £4bn a year for staying loyal to their providers. The CMA’s investigation covers a number of sectors, including insurance.
Earlier research from the FCA found that people who had been with the same house insurer for five years paid 70 per cent more than new customers.
The move by the FCA is a blow to insurers, which had launched an action plan earlier this year to not penalise loyal customers in a bid to see off a full-blown market study.
The FCA also has antitrust powers for the financial sector. Its market studies can be powerful tools, as the asset-management sector recently found after the FCA uncovered hidden fees and weak competition on prices, and referred part of the sector to the CMA for a more in-depth study.
Andrew Bailey, the FCA’s chief executive, said that the regulator would work closely with the CMA.
“We expect firms to look after the interests of all customers and treat them fairly, whether they are new or long-standing,” he said. “It is important to get the balance right so that existing customers do not miss out on the benefits of competition and innovation, including when they purchase or renew their general insurance products.”
Huw Evans, director-general at the Association of British Insurers, said:
“In any market where there is regular switching and fierce competition for new business, good deals are available to those who shop around but this does mean long-standing customers can lose out. The insurance industry recognises this is a problem and earlier this year became the first and only sector to take voluntary, industry-wide action to tackle it.”
“These industry commitments are a positive step in tackling excessive premium differences that can unfairly penalise long-standing customers,” he added.
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