Central Bank wavers on plan to rein in ‘automatic’ insurance renewals

The Central Bank revealed on Tuesday that it is wavering on a proposal to make insurers secure customers' written consent before setting their policies to renew automatically at the end of a period of coverage.

However, it is sticking to a plan to ban the widespread practice of motor and home insurers increasing premiums for loyal customers by stealth from July. This is known as “price walking”, where customers are charged higher premiums relative to the expected costs the longer they remain with an insurer.

The regulator said the idea that automatic renewals be an “opt-in”, rather than an “opt-out”, for customers needs “further consideration to avoid the risk of any unintended consequences, including any scenarios that might lead to consumers finding themselves without critical insurance cover”, particularly in the areas of health and motor insurance.

The practice amounts to an insurance provider automatically renewing a contract at the end of a coverage period, unless the customer says otherwise. The Central Bank proposal on this matter received a lot of pushback from participants in a public consultation, with objections including the fact that it could expose customers to coverage lapses.

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It will likely be next year before the Central Bank decides on whether “opt-ins” will be required, officials told reporters in a briefing on Tuesday.

The regulator will require, in the meantime, that insurance providers send information to customers in before automatic renewals kick in, including the right to cancel and switch coverage.

‘Price walking’

Meanwhile, the ban on “price walking” in insurance in the motor and home insurance market will come into effect from July 1st, in line with proposals set out nine months ago. This means that insurers cannot charge personal consumers who are on their second or subsequent renewal a premium that is higher than what they would have charged them if they were on their first renewal.

The rules stop short of following a UK move last May to effectively prohibit insurers from offering below-cost discounts to lure new customers from the start of this year.

The Central Bank's director general of financial conduct, Derville Rowland, defended the Irish approach, based on the regulator's research into data covering a three-year period and 90 per cent of the market.

“Our own insights told us that when we looked at this, there is a significant value attached for new customers to get discounts where they’re available,” she said. “We saw that particularly, for example, for younger drivers, where the cost of insurance can be very high. And we were persuaded that we saw a merit in that option being available.”

The Central Bank estimated in a report published last July that customers who stay with the same car insurer for nine years or more pay 14 per cent more than a driver with a similar risk profile renewing for the first time.

The disparity is even starker in home insurance, where the difference averages 32 per cent.

Central Bank officials were not able to provide overall monetary estimates of how much Irish households could expect to save in a given year from its proposal.

Annual review

Insurers and brokers will be required in future to carry out an annual review of motor and home insurance pricing policies and processes to ensure sound practices.

The new measures are being enforced almost three years after the regulator decided to look into the issue of differential pricing in insurance.

Work published last year by the Central Bank estimated the extent to which loyal customers are paying over the odds for coverage by comparing actual premiums with a “technical premium”, which is an insurer’s view of the cost of pricing the policy.

Where new motor customers typically benefit from a 2 per cent discount to the technical premium, someone who has been with an insurer for at least nine years is charged, on average, 25 per cent more than the break-even threshold.