Insurers will be the focus of a new probe by the City regulator, which is planning to investigate whether customers are getting a good deal when they purchase home and motor insurance.
The Financial Conduct Authority said it is concerned that general insurance pricing practices “have the potential to cause harm to consumers, particularly those who are vulnerable”.
The watchdog said supervisory work on home insurance had uncovered a number of issues that “could cause harm to customers”, including firms failing to have appropriate or clear pricing strategies, governance and controls.
Andrew Bailey, the FCA’s chief executive, said: “Our initial work has identified a number of areas of potential consumer harm. We want to make sure that general insurance markets deliver competitive and fair prices for all consumers.
“This market study will help us examine the outcomes from general insurance pricing practices and inform how, if necessary, we should intervene to improve the market.
“If change is needed to make the market work well for consumers, we will consider all possible remedies to achieve this.”
Gareth Shaw, money expert at Which?, said: “This review is long overdue. For years, loyal policyholders have been exploited by insurance providers, punished by excessive premiums, and have had to battle with unclear pricing that makes it difficult for people to understand whether or not they’re getting a fair deal.
“Customers who prefer to stay with one provider are at risk of being hit with vastly overpriced premiums when little has changed in the service they receive. It’s right that the regulator tackles this sector to ensure customers aren’t punished for their loyalty and that pricing is clear and transparent across the industry.”
Georgie Frost, consumer advocate at GoCompare, said the investigation was welcome “because clearly something isn’t right and people feel they are being ripped off”.
“Clearer rules and regulations will be better for everyone because we can’t have a system where it is the most vulnerable that are the hardest hit,” she said.
“Equally, some people who can switch aren’t doing so and we need to find out why and make sure they are fully engaged.
“The ‘tease and squeeze’ approach to pricing is the go-to tactic in many industries, including car and home insurance. New customers are enticed with a competitive price and then, if they don’t shop around and switch, they face often stealthy – sometimes blatant – premium increases in subsequent years.
“It’s imperative that people keep shopping around and switching to avoid getting ripped off, but more also needs to be done to make it clearer how customers can switch.”