Targeted solutions are needed to help reform Ireland’s insurance sector
ALL of us have become increasingly aware of the practice of differential pricing — the charging of different customers different prices for the same good or service. It exists in a diverse range of sectors, such as supermarket shopping, energy, telecommunications and airline travel, to name but a few.
As consumers we come across it in the course of our daily lives, without ever thinking too much about it. We may, for example, be paying more than other shoppers who have vouchers when doing our weekly shopping. In a market where consumers shop around, this practice can bring benefits as well as encourage competition and innovation among providers. This is a common pricing tactic for many businesses, it is a practice that can also work against consumers who may not be in a position to shop around.
The Irish insurance market is not working as it should be, and care is needed so as not to make matters worse. A single measure such as a blanket ban on differential pricing in Ireland will have major consequences for Irish policy holders. There is a reason why this hasn’t been done by the UK or any country in the European Union. It doesn’t seem to be the best way to encourage competition in the insurance industry or deliver fairer premiums for customers.
As the Minister of State in the Department of Finance with special responsibility for Financial Services, Credit Unions and Insurance, I have a keen interest and a growing concern in relation to how this practice is being used to price home and motor cover. The Government’s 66-point Action Plan for Insurance Reform, launched in December, contains a wide range of objectives to decrease the cost and increase the supply of insurance. Examining the issue of differential pricing is a key action within this plan and the Central Bank is undertaking a detailed review of the issue and will conclude their work soon.
Before Christmas, the Central Bank published an interim report showing that differential pricing is evident across both the car and home insurance markets. An analysis of the interim report showed the practice may include both benefits and drawbacks to consumers. It also suggested that there appears to be a penalty for some customers who remain with the same company and don’t shop around or challenge their renewal premium — a so-called loyalty penalty.
Firm conclusions will be made when the report is finalised and my officials and I continue to engage on this issue and other important insurance matters.
We need to acknowledge that this issue can create both winners and losers.
The banning of this practice could reduce choice for customers as well as leading to an increase in prices generally.
Care is required in terms of a policy response and this is included in the Government’s action plan, which was published before Christmas and which has clear timelines for delivery.
One such response is to encourage greater competition — both in terms of providers and in terms of consumer awareness.
I recently established the Office to Promote
Competition in the Insurance Market, which I lead.
This office is located within the Department of Finance and will, among other activities, work to increase public awareness of the benefits of shopping around for insurance.
In addition, the office will encourage new entrants to the Irish insurance market.
This process will be made far more difficult if there is an absolute ban on differential pricing, as new providers will be prevented from offering discounts to attract customers and gain market share.
Insurance companies have a duty to treat their customers fairly and honestly while also ensuring that they conduct their businesses in a sustainable manner.
I have recently written to the chief executives of the major insurance companies and I will be meeting with them again individually. Along with this I will be hearing from other interest groups within society on insurance matters over the coming weeks.
Government interventions need to be firm and carefully considered.
The issues are more complex and require a more targeted approach as laid out in the Government’s Action Plan for Insurance Reform.
The Government’s priority remains implementing this plan — and both Finance Minister Paschal Donohoe and I will give this issue the priority it deserves.
Accordingly, the solutions we will bring forward will be evidence-based and seek to protect the ability of policy holders to get the best deal, whatever their circumstances.