Financial Conduct Authority says pricing practices could be causing "consumer harm".
The UK’s financial regulator has confirmed that it will investigate the way in which firms charge their customers for home and motor insurance.
The Financial Conduct Authority (FCA), which regulates markets such as banking and insurance, confirmed that a piece of “supervisory work” on insurance practices uncovered the need for “a market study on general insurance pricing practices”.
As part of the study, the FCA says it will focus on whether pricing practices are harmful to consumers and competition within the industry.
However, the organisation says it will also look into “potential non-compliance” with regards to rules on transparency at renewal.
At present, insurers are required to send consumers renewal documentation that includes last year’s insurance premium for easy comparison, as well as to encourage customers to shop around for the best deal.
When the rules were introduced in April 2017, the FCA said the new rules would make price increases for existing customers “more transparent”.
But the FCA is now suggesting that some insurers may not be adhering to the rules, and the organisation has threatened to use “the full range” of its powers on non-compliant insurers.
The new study is due to be published in full before the end of 2019, although an interim report will come out in the summer of next year.
Andrew Bailey, the FCA’s chief executive, said the organisation would “intervene” to make sure the market was fair on consumers.
“Our initial work has identified a number of areas of potential consumer harm,” he said. “We want to make sure that general insurance markets deliver competitive and fair prices for all consumers. This market study will help us examine the outcomes from general insurance pricing practices and inform how, if necessary, we should intervene to improve the market.
“If change is needed to make the market work well for consumers, we will consider all possible remedies to achieve this.”
The news was welcomed by data analytics firm Consumer Intelligence, which described the increased insurance premiums for existing customers as “a hard habit to break”. However, the company’s chief executive, Ian Hughes, warned that a “heavy-handed” intervention could cause consumers more harm than good.
“The problem of charging new customers less than existing customers at renewal is one that nobody likes,” he said. “It isn't good for consumers, it isn't good for insurers and regulators have made it clear they don't like it. It's a hard habit to break as insurers depend on new business and consumers have been conditioned and rewarded to change providers each year.
“We're glad the regulator has stepped up to help wean customers and insurers off dual pricing, but fear a heavy-handed approach may hurt consumers more. A measured approach to fixing the problem is definitely the way to go.”
“It is also important to note that pricing is not the only factor that customers consider,” he added. “As our research into retention and renewal shows, factors like trust and receiving good service have a big as an influence as price when consumers consider whether to renew their policy or change providers.”