Price walking effectively punishes loyal customers, with policyholders paying artificially inflated renewal premiums to subsidise the much lower prices offered to new customers. The Financial Conduct Authority (FCA) ban on it comes into force in January.
The practice has been widespread in the direct-to-consumer (D2C) motor and home insurance markets for many years. The FCA estimates that the insurance industry gained £1.2bn from six million policyholders through price walking in 2018. It predicts that the new ban will save customers £4.2bn during the first ten years following its introduction.
Emphasis on value
The ban will level the playing field for the home insurance market. It will make it easier for mortgage brokers to offer customers competitive, but realistically priced, insurance products, carefully tailored to match customers’ specific requirements. In effect, the FCA’s actions offer an opportunity to rebalance this market, ending a race to the bottom on price and moving instead toward an emphasis on products and services that offer real value.
The ruling also offers brokers new opportunities to contact customers more regularly during the lifecycle of their mortgage, to offer them additional products or service enhancements and to nurture stronger relationships. Brokers and customers will both benefit if brokers are then able to develop comprehensive packages of tailored products and services.
And, if customers are less tempted by loss-leading quotations from the D2C market, it should be easier for brokers to win new business alongside remortgage and product transfers.
Brokers will be able to draw on sourcing systems, clubs, networks and trade associations operating in GI to help customers find products to meet their needs. Even brokers who don’t normally advise on GI can help their customers to benefit from the FCA’s ruling, by working with distributors and other partners to refer to a suitable provider.
Customers who shop around every year for the best insurance quotes may be disappointed by the immediate consequences of the FCA ban, which could remove some of the very cheapest deals from the market.
But brokers should seek to explain that the ban will benefit all insurance customers in the longer term, that the cheapest deals are rarely the best choice for most customers, and that the way to ensure the best outcome is to work with a broker who understands the customer’s requirements and will search for products that genuinely meet those needs.
The FCA’s ruling offers an opportunity for customers to discover that not all insurance policies, services and intermediaries are the same.
It gives the best mortgage brokers a chance to prove their true worth by adding a new dimension to the already exemplary services they deliver – and an opportunity to enjoy significant commercial rewards as a result.