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ombudsman news

issue 144

April 2018

paying the price?

Whether it’s the weekly shop or a daily coffee, retailers are very good at convincing us to keep coming back. Swiping a loyalty card or getting a stamp is the norm for many people. And it’s expected that this loyalty will be rewarded – whether it’s in the form of vouchers and discounts, or just a free drink once in a while.

However, the same can’t always be said for financial services. From introductory “teaser” rates on savings to initial interest-free periods on credit, in some areas it’s arguably people who move around who end up getting better deals.

From the complaints we see, it’s clear insurance is an area where people may feel they’ve been penalised for staying put. In particular, people who’ve stuck with their insurer for a number of years are telling us they’ve discovered they’re paying far more than new customers – or more than they’d pay for similar cover elsewhere.

It’s important to emphasise that setting the price of insurance is a complex business. There are all sorts of things going on in the background – not only to do with assessing risk, but also about enabling the insurer to stay in business. And our role isn’t to tell insurers what to charge, or whether they’re generally offering their customers value for money.

But insurers do have a responsibility to treat their customers fairly. That includes engaging with their customers about what they’re paying in a way that’s not misleading – and that allows them to make an informed choice. In a small but significant number of cases, we’ve seen that this hasn’t happened – and people are paying the price for loyalty in a way that’s simply not fair.

So when does the price of an insurance policy become a matter of fairness? The answer – as we’ve illustrated in this ombudsman news – inevitably lies in each customer’s individual circumstances.

For example, using price comparison websites is second nature to many people. And shopping around is something that’s advocated by consumer champions – as well as the insurance industry. If someone’s savvy enough to use those tools, it’s reasonable to think they’d move on if they didn’t feel they were getting a good deal.

But what about those who aren’t able to shop around online – and are relying on their insurer’s word for it that they’ve got competitively-priced cover? At what point should an insurer be proactive in engaging with someone they haven’t heard from for a while? Or checking whether a long-standing customer might be vulnerable in some way?

Encouragingly, from our recent conversations with insurers, it’s clear they’re focused on addressing these issues. We’ll keep the discussion going, especially as the Financial Conduct Authority’s work in this area develops. And in the meantime, where it’s clear to us that someone’s loyalty has come at an unfair price, we’ll take action to put things right.

Caroline Wayman

Image: Caroline Wayman: 
chief ombudsman
Caroline Wayman
chief ombudsman

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.