The FCA have today announced that dual pricing or price walking will be banned from January 1st 2022.
Price walking / dual pricing is the practice whereby insurance providers set their acquisition / year 1 prices at a loss-leading level specifically to be able to compete against other providers who are also doing the same thing such that their offer appears near the top of price comparison website (PCW) search results. This obsession with cheap insurance, with scant focus on whether the product being sold actually meets a customer’s needs, is entirely a product of PCWs’ desire to get consumers to churn year-after-year to drive their expensive annual commissions and avoid “loyalty penalties”.
The FCA estimates that dual pricing and the loyalty penalty costs as much as £1.2bn per year.
Finally the FCA has recognised that whilst cheap may sound good, this annual pricing circus is delivering poor value for customers on a number of levels, notably the drastic year 2 and later price rises for customers who have any loyalty (or simply don’t get round to shopping around), but also the reality that providers are stripping out coverage in order to hit price points.
Goodbye loyalty penalty
From 1st January insurance providers can no longer discriminate against loyal customers, or in other words, the pricing shock of year 2 and later year prices can no longer happen. Renewing customers must be offered the same price as new customers, which means that the absurd price manipulation in year one to chase the ‘cheap’ drug on PCWs will end, and providers will have to start to price their products properly.
This means that price will no longer be the sole lens through which insurance providers look to attract customers, as the FCA have mandated that everyone involved in the provision of insurance must demonstrate “fair value”, i.e. products must be fit for purpose, must be fairly priced, and must match what the customer identifies that they need.
This is bad news for the meercat, opera singer and all others who have relied upon and perpetuated this murky practice for years. No longer is the annual price dance needed by consumers, which - with their entire commercial models built around this - hugely calls into question the relevance of old-fashioned PCWs at all.
The future of comparison
For Honcho this represents a huge opportunity.
Whilst we have always been conscious of price as an important element, our focus has always been on helping consumers to discover the insurance protection that is right for them. Our customers are already demonstrating that they are interested in more than cheap basics, with over 80% of our customers buying products that ranked as ‘best’ (i.e. closest fit to their requirements) vs. ‘cheapest’ this year. Discovery of products that match their need, with our unique reverse auction marketplace helping to get that product at a great price, is the future of insurance comparison.
This is a massive day for personal lines insurance, one that has been a long time coming, and one that heralds a bright, bold new future for the businesses connected with insurance provision and distribution who embrace innovation with a commitment of delivering fair value to the British public.