The practice of hiking up customers premiums when they renew their insurance policies is not normal practice across the industry, the head of the Association of British Insurers has told a senior MP.
A letter from Otto Thoresen to Andrew Tyrie, chair of the Commons Treasury committee, was published at the weekend. Tyrie has been campaigning on what he says are unfair pricing practices used by the insurance industry.
In the letter, written on April 22, Thoresen said extreme difference in premium pricing was 'not viewed as normal'.
He added: 'We believe that excessively high rates at renewal
stem directly from legacy products within the home and contents insurance market.'
Such policies, which are often offered by banks and building societies to mortgage customers, are based on data sets and sold with a tariff structure that differs from contemporary products, he explained.
'In other words, the produce deigns around and distributed with specific mortgage products may well have been allowed to run on but may have no equivalent in the new business products available.'
He stressed that the UK general insurance market was 'one of the most competitive in the world'. Excessive premium hikes were not a reflection of the competitive nature of the market, but reflected a disconnect within one segment of it.
The ABI had developed a 'positive working relationship' with the Financial Conduct Authority and took very seriously the regulator's requirement to treat customers fairly, Thoresen added. But he said an industry code on pricing would be 'anti-competitive and therefore illegal'.
Tyrie wrote to both the ABI and the Financial Services Authority (the FCA's predecessor body) in March to highlight his concerns at high premiums. He said customers who did not use price comparison websites, many of them elderly people, appeared to be penalised by such practices.
Publishing the chain of correspondence on July 6, Tyrie said there had been regulatory failure on insurance pricing and urged the new watchdog to do better.
'Competition can help. After a good deal of pressure from the Treasury committee, the FCA has been given a competition duty. It can do a lot to help consumers, especially vulnerable consumers. If people are given a more meaningful choice, they are less likely to be ripped off.'
In his letter to Tyrie, Martin Wheatley, managing director of the FCA, said the watchdog was already discussing premium charging with insurance firms.
'We will decide what, if any, action needs to be taken once we gather the information necessary,' he said.
'Our supervisors are also currently running thematic work looking at the fairness of automatic renewal terms and practices in a number of firms' motor and home insurance policies.'
