Fixing dual pricing could lead to ‘whack-a-mole’ problems, says Aviva

Last autumn, the FCA took up the mantle for stamping out dual pricing, where the same product or service is sold at different prices for different markets, for example between new or existing customer bases. Aviva chief executive for general insurance Colm Holmes warns that the industry has to be careful of the unintended consequences of tackling dual pricing, such as the accidental creation of uninsurable risk classes.

“It’s like whack-a-mole,” he said. “You fix one problem and [another] problem pop ups somewhere else. You’ve got to be conscious of the unintended consequences of decisions we make.”

Aviva operates safeguarding, to mitigate dual pricing and Holmes says he is “hugely supportive” of the work the FCA is doing with the industry in this remit. Despite this, he is still wary of potential outcomes, and is glad the FCA is taking its time to delve into the complexities of the issue.

He said: “Insurance markets themselves are not hugely profitable, so it’s not an excess profit problem they’re dealing with. Fixing it for one group of people will pass the cost on to another group.

“What we’ve got to be careful [of is] that we don’t create uninsurable risk classes, which will predominantly fall on younger and older drivers. We’re very conscious of the fact that we need to be able to provide insurance to the entire market.”

One step that Aviva has taken to tackle dual pricing is its AvivaPlus suite of products – this aims to reward loyalty by ensuring that renewal prices match new business prices for a specific product set. Based on a subscription model, with no fees for cancelling or purchasing policies, Holmes said AvivaPlus “puts choice back into customers’ hands”.

Market conditions

For Holmes, both personal and commercial lines markets are hardening, thanks to the fluctuations of renewal pricing, the impact of the Ogden rate, Lloyd’s Decile 10 and casualty issues, such as the opioid crisis in the US. However, Holmes does think the upcoming whiplash reforms could soften the motor insurance market.

A further key issue lies in the small to medium enterprise (SME) market, added Holmes. 

“That market has really struggled with underinsurance,” he said. “We’ve got to address this because it’s a real issue. Underinsurance in the SME space is going to be a focus for us in 2020 and 2021.”

Climate change impacts, such as flooding, are also on Holmes’ radar, especially since Aviva launched its green energy insurance policies for commercial customers at the end of last year. 

“Brokers are loving it,” he said. “They really like what we’re trying to do there. That’s going to be a continued growth area. The industry needs to do more – defences cannot be the solution to the flood problem.”

Growth areas

Where else does Holmes see growth opportunities?

“Key growth focus will be in mid-market commercial and specialty risk classes,” he said. “That’s where we’re investing a lot of our focus in 2020, on enhancing and developing our share in those markets. Those markets are expanding quickly. We believe there’s a lot of uninsured and underinsured risk in that market, so there is a need for an insurance solution.”

The resolution of Brexit, he added, provides opportunities in commercial markets. In personal lines, he said brokers are re-entering this arena as customers seek advice on risks. 

Digitalisation, meanwhile, will continue to be an opportunity and a risk, depending on an organisation’s stance.

Aviva additionally plans to continue building bridges with brokers. Holmes said: “We’ve got to give a lot more to brokers in terms of the work we do with them on digitalisation, on regulation, on risk. And then likewise, the work they’re doing with us [to] help us understand customer needs.

“We’ve got to work with our partners. If they’re successful, we’re successful.”