Discrimination against loyal customers with differential pricing must end

14 December 2020
  • Labour to publish Consumer Protection bill to end the perverse ‘loyalty penalty’
  • Central Bank interim report shows urgent need for action.

With an interim Central Bank report showing that more loyal customers are punished with higher insurance premiums, Labour Finance spokesperson Ged Nash said there was an urgent need for action, and that tomorrow the Labour Party would publish a Consumer Protection bill to ban the loyalty penalty for subscription services.

Deputy Nash said:

“Today’s finding from the Central Bank interim report that the majority of insurance providers apply some form of so-called “dual pricing” is truly shocking, if unfortunately not surprising given the repeated revelations about how the sector operates in Ireland. It shows that this is not a one-off problem, but points to systematic and widespread exploitation of customer loyalty. It shows that sales practices in the insurance market mean customers with a similar risk and cost of service are paying different prices, principally because of their loyalty rather than their risk profile, and that most providers apply some form of differential pricing.

“This is why tomorrow with my colleagues Duncan Smith and Aodhán Ó Ríordáin we will publish a new Consumer Protection Bill. This will tackle the practice that exists in many sectors, not just insurance, of charging higher prices to existing customers who are less likely to switch. Our bill would outlaw loyalty penalties for services provided to consumers on subscription or rollover. In most consumer relationships, loyalty is rewarded not penalised.

“The ‘loyalty penalty’ is particularly galling, as it punishes those ordinary customers, many of whom are older people and other vulnerable groups who may not keep up to date with every changing market product and various complex offers.

“This practice of differential pricing typically sees motor and home insurance customers with a similar risk profile being charged different premiums by taking into account factors such as how likely a customer is to auto-renew their insurance. What we now know from the Central Bank report is that renewing customers are paying significantly more than the expected cost of the policy, but that new customers are paying marginally less than the expected cost. That means the longer a customer remains with their insurer, the more they can expect to pay. This is perverse.

“The final report of the Central Bank will be published later in 2021, but in the meantime, we want to address this dual pricing issue through a simple change to the law that would ensure existing customers when renewing their policy or subscription cannot be charged a higher fee than a new customer. This would be deemed an unfair commercial practice.

“The Central Bank reports findings are consistent with, and yet again points to an unaccountable culture within the insurance industry, one in which consumers interests are an after-thought. This needs to rapidly change. Given the seriousness of the implications for consumers and the fact that a majority of insurance providers are engaging in such practices, the Central Bank must also immediately clarify if all insurers are co-operating fully with the investigation, and the investigation itself must be speeded up and concluded as a matter of urgency. 

“As for the Government, last week we heard yet another plan on insurance reform. The Government needs to bring the curtain down on this unfair practice and prove that customers come first by prioritising robust regulation, hard-hitting enforcement and severe penalties – for both corporate actors and individuals – to finally put an end this rip-off practice.

“In the meantime I hope that when our own legislation comes to the Dáil that the government will agree to support it.”

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