The British Insurance Brokers' Association (BIBA) is the UK 's leading general insurance organisation representing the interests of insurance brokers, intermediaries and their customers. BIBA membership includes 1,700 regulated firms. BIBA brokers handle around half the value of all UK home, contents, motor, travel, commercial and industrial insurance policies. Insurance brokers make a direct and indirect contribution of 1% to UK GDP.
BIBA is the voice of the industry advising members, the regulators, consumer bodies and other stakeholders on key insurance issues. BIBA provides unique schemes and facilities, technical advice, guidance on regulation and business support and is helping to raise, and maintain, industry standards.
Insurance industry action on new customer premiums vs renewals
Insurers and brokers have today announced a new plan to help tackle excessive premium differences between long standing and new customers.
The ABI (Association of British Insurers) and BIBA (British Insurance Brokers’ Association) have launched a set of Guiding Principles and Action Points that will address some of the issues in the current market that can lead to excessive differences between new customer premiums and subsequent renewal premiums that unfairly penalise long-standing customers.
By implementing this initiative, ABI and BIBA members can expect to see an improvement in the outcomes for long-standing customers. The ethos and approach to better outcomes for long-standing customers will be formally incorporated into firms’ procedures for determining the premium at renewal.
The Guiding Principles and Action Points (GPAPs) apply to key personal lines insurance products such as home, motor and travel, but not pet or health insurance. Many pet and private health insurance products provide cover at renewal for medical conditions that arose since the inception of the policy. These would generally not be covered under a new policy, meaning comparisons are not valid.
Key commitments include:
- ABI and BIBA members do not support excessive differences between new customer premiums and subsequent renewal premiums that unfairly penalise long-standing customers
- ABI and BIBA members will take action so that customers’ tendency to shop around at renewal is not used to lead to excessive pricing differences that unfairly penalise long-standing customers.
- The ethos and approach to better outcomes for long-standing customers will be given Board or senior management level priority and formally incorporated into firms’ procedures for determining the premium at renewal.
- ABI and BIBA members should make clear in written, online or verbal customer communications that the new customer premium only applies for that year and subsequent renewal premiums may be higher.
- ABI and BIBA members who impact the final premium paid by customers should review their pricing approach for customers who have been with them longer than five years and assess whether this approach delivers a fair outcome.
- The ABI and BIBA will publish a report in no more than two years’ time that demonstrates how ABI and BIBA members have sought to tackle excessive differences between new customer premiums and subsequent renewal premiums that unfairly penalise long-standing customers.
ABI Chairman Andy Briggs said:
“Insurers do a great job for their customers, providing peace of mind and financial help when they most need it, but the renewal market simply doesn’t work where loyal customers get charged much more than new customers.
“Given many consumers expect to get cheaper insurance when they shop around, there is no easy solution. These new Guiding Principles and Action Points are a positive initiative by the ABI and BIBA members to demonstrate that the whole industry recognise this is an important issue that needs to be addressed.”
Lord Hunt of Wirral, Chairman of BIBA said:
“It is part of the DNA of insurance brokers to put the best interests of the client first. That is why I am so delighted that insurers and brokers have come together for the benefit of our established and loyal customers, setting out a positive path forward on renewal pricing. I would encourage everyone within the wider market to join with us in adopting these guiding principles and action points.”
Today’s announcement follows the introduction last April of new rules, first called for by the ABI, that compel companies to display the previous year’s premium on renewal notices.
Why do some long-standing customers pay higher premiums?
Many consumers expect to get cheaper insurance when they shop around, and this makes it difficult to offer good deals to both new customers and long-standing customers. Insurers compete fiercely for new business which often means offering cheaper prices and sometimes selling the first-year policy at a loss.
While price variation is a natural consequence of a competitive market and benefits many consumers, there are occasions where the differentials can become marked. This is often linked to inertia and can result in poor customer outcomes for long-standing customers.
What difference will this initiative make? Will the price of my insurance drop?
ABI and BIBA members expect to see a marked improvement in the outcomes for long-standing customers. How firms adapt to implement the GPAPs within their own businesses will vary in line with their customer base, business models and pricing strategies and any actions they may already have taken.
We would also welcome the regulator, the Financial Conduct Authority, taking the GPAPs into account when supervising firms’ pricing practices.
What types of insurance are affected and which aren’t?
These Guiding Principles and Action Points apply to personal lines general insurance products with contract terms of 10 months or longer, except pet and private health insurance products, where different market conditions mean they are not applicable.
Many pet and private health insurance products provide cover at renewal for existing medical conditions that arose since the inception of the policy. These would generally not be covered under a new policy, meaning comparisons are not valid.
When does it come into effect?
The ABI and BIBA launched the initiative on 8th May 2018. They fully expect to start seeing an improvement in the outcome for long-standing customers and will produce a report in no more than two years’ time, demonstrating how ABI and BIBA members have taken action.
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