FCA to launch probe into dual pricing

The Financial Conduct Authority (FCA) is launching an investigation into dual pricing.

The practice involves customers who are renewing their policies being charged a higher premium than new customers. This has a particularly adverse effect on elderly customers who are less likely to shop around for alternative quotes at the time of renewal.

Chairman of the Commons Treasury Committee Andrew Tyrie wrote to the FCA chief executive Martin Wheatley (pictured) and the Association of Brithish Insurers director General Otto Thoresen in March to complain about dual pricing.

In his letter, he said: “Such practices appear to penalise long-term loyalty and are to the detriment of those less able to access price comparison resources, particularly the elderly.”

Replying to the letter, Wheatley said that the regulator would be looking into the use of dual pricing. He said: “We will look at issues like premium charging in a new light. In particular we will be interested in whether firms are taking advantage of consumers who simply accept what they are offered.”

Thoresen said that “excessively high” renewal rates and “extreme differences” between automatic renewal prices and new customer quotes were unusual, but that the practice of dual pricing to increase new business should be expected.

However, dual pricing can lead to renewal prices that are markedly higher than those for new customers. One 83-year-old Radio 4 listener saw her home insurance premium rise to £850, while new customers were being quoted as little as £200 for a similar policy.

In a statement released on Friday, Tyrie said that he welcomed the FCA investigation, but that the new regulator must do more than its predecessor to protect consumers.

“The previous regulatory regime failed to protect consumers. It must do better this time around,” Tyrie said. “The FCA … 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. The committee will scrutinise closely the information gathered by the FCA.”