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The most notable aspect of the Regulations is the introduction of a prohibition on ‘price walking’ in the motor and home insurance market. This means that when the Regulations come into effect on 1 July 2022, insurance undertakings and intermediaries (“Insurance Providers”) cannot charge consumers, who are on their second or subsequent renewal of an insurance policy, a premium that is higher than they would have charged an equivalent year one consumer renewing their policy.
New customer discounts will be permitted however, in order to support competition and switching.
The Regulations follow on from the Central Bank’s 'Review of Differential Pricing in the Private Motor and Home Insurance Markets', which identified that the practice of price walking could result in unfair outcomes for some consumers.
The Central Bank has also published a Differential Pricing Q&A (the “Guidelines”), to assist Insurance Providers understanding of the Regulations.
Key Changes
The key changes introduced by the Regulations are:
- A ban on price walking for home and motor insurance policies.
- Insurance Providers must carry out an annual review of their home and motor insurance pricing policies and processes, to confirm that they do not systematically discriminate against consumers based on tenure or systematically exceed the price charged to first time renewal consumers in respect of renewals for longer tenure consumers.
- Insurance Providers must allow consumers to cancel auto-renewals of non-life insurance policies free of charge, at any time during the duration of the policy. The Central Bank’s Guidelines clarify that Insurance Providers will be expected to implement the automatic renewal requirements by 1 October 2022.
- For automatic renewals of non-life insurance policies, better information and reminders must be provided by Insurance Providers to encourage switching.
Scope
The Regulations will apply to Insurance Providers operating in Ireland, in their dealings with ‘consumers’, which includes incorporated bodies with a turnover of €3 million or less as well as individuals
.
The Regulations are not retrospective and will only apply to insurance policies entered into from 1 July 2022. However, the Central Bank Guidelines indicate that Insurance Providers are expected to comply with the spirit of the Regulations in any pricing decisions made prior to 1 July 2022, which will impact policies renewing after 1 July 2022.
The Ban on Price Walking
Regulation 4(1) states that Insurance Providers "shall not set a subsequent renewal price that is higher than the equivalent first renewal price".
When calculating the first renewal price, the Insurance Provider must assume that the consumer has used the same sales channel and same payment method. The Central Bank’s Guidelines explain that the factors which need to be considered when calculating the first renewal price include:
- Commission
- Insurance intermediaries’ fees
- Direct debit fees
- Cashback
- Retail vouchers
- Free period of cover
- Loyalty scheme points
- Other cash equivalent incentive
However, the Regulations do not prevent the subsequent renewal price increasing in response to a change in the risk.
If a consumer's policy is part of a closed book (meaning the home or motor policy is not available for first renewal), the Insurance Provider must calculate the first renewal price by:
- identifying a closely matched home or motor insurance product (marketed by the Insurance Provider or a company in its group) and applying the equivalent first renewal price of that closely matched product to the policy; or
- where the Insurance Provider is unable to identify a closely matched product, the Insurance Provider must ensure that it does not discriminate against a consumer based on their tenure when determining the subsequent renewal price for consumers in closed books.
Insurance Providers will need to review their pricing practices, and implement any changes required in order to comply with the Regulations and the Guidelines by 1 July 2022.
Insurance Providers will also need to assess what changes are required to their systems, processes and documentation to ensure compliance with the Regulation’s automatic renewal cancellation requirements, by 1 October 2022.
Written by: Aisling McMorrow