Briefing: Will anyone admit to price walking?

By Editor Katie Scott

It is undeniable that the FCA’s incoming general insurance pricing reforms for the home and motor insurance markets is going to signal a huge change for insurers and brokers that operate in this arena – most notably around the regulator’s ever-growing spotlight on the ethos of fair value and the planned elimination of the practice of price walking, where new customers are offered a more competitive premium than existing, renewing customers.

Back in September 2020 when the FCA first published its proposals, it revealed that on average, new customers pay £285 for motor insurance, while customers who have been with their provider for more than five years pay £370.

In terms of combined buildings and contents insurance, new customers were found to pay £165 on average, while customers who have been with their provider for more than five years pay £287.

Clearly, the stats show that price walking does exist in these markets, hence the regulator’s actions. But will any insurers publicly own up to being a price walking perpetrator?

On the flip side, a number of firms have – however – been quick to emphasise that price walking has never formed a part of their business strategy, meaning they have less work to do ahead of the scheduled deadlines in September and December.

One such party is insurer Hiscox – I spoke to current chief executive Bronek Masojada, as well as incoming boss Aki Hussain, this week following the publication of the firm’s half year financial results.

Masojada confirmed that Hiscox had “never” employed a price walking strategy, adding that the firm tries to “give the right price for that risk and keep it at that price”.

Because of this, “clearly, we don’t have to change our pricing strategy”, he said.

However, the firm will need to prove to the regulator that this is, in fact, the case.

Masojada continued: “What we have to do is evidence that [Hiscox does not use price walking] and create the systems to evidence that that is in fact what’s happening.

“So, there’s some internal work to be done, but in terms of fundamental strategy change, we weren’t pursuing [price walking] so we don’t have to change it.”

He further believes that Hiscox could be “a beneficiary” of the reforms thanks to its stance on price walking, rectifying the fact that its “direct homeowners business has always struggled a little bit”.

Another business washing its hands of any involvement with price walking is motor insurer Sabre Insurance, led by chief executive Geoff Carter.

He told me last month that Sabre “don’t do it, we haven’t ever done it, so we don’t really have any work to do there”. For example, regarding the additional reporting requirements effective from 1 October, Carter said Sabre has “very flexible systems”, so there is “nothing that we can’t accommodate”.

In turn, he feels this presents “quite an opportunity for us because we don’t need to increase our prices because we’ve always priced in the way the FCA is now mandating”. This will contradict those insurers that will need to increase their new business prices and potentially decrease renewal prices.

Although the first of the FCA’s deadlines is fast approaching in September, it is the final year-end deadline that is the “real crunch”, according to Carter.

As insurers work behind the scenes to prepare for these pricing changes, it will be interesting to see how much transparency firms will offer around this work and how vocal businesses will be about fixing price walking practices they may have previously employed.

Following the reputational debacle of the business interruption test case, some clarity around these proceedings could well help polish a tarnished industry image by demonstrating that the sector constantly strives to improve for its customers.