Central Bank plans to ban ‘loyalty penalties’ across car and home insurance

Loyal customers pay up to 32% more on renewals than price quoted to new customers

The Central Bank plans to ban the widespread practice of motor and home insurers increasing premiums for loyal customers by stealth. However, it stopped short of following the UK in effectively prohibiting providers offering below-cost discounts to lure new customers.

The regulator said on Wednesday that it is proposing to ban so-called “price walking”, where customers are charged higher premiums relative to the expected costs the longer they remain with an insurer.


This means that insurers cannot charge personal consumers who are on their second or subsequent renewal a premium that is higher than what they would have charged them if they were on their first renewal.

It estimates customers who stay with the same car insurer for nine years or more are paying 14 per cent more than a driver with a similar risk profile renewing for the first time.


The disparity is even starker in home insurance, where the difference averages 32 per cent.

Central Bank officials were not able to provide overall monetary estimates of how much Irish households could expect to save in a given year from its proposal, which is subject to a public consultation process running until October 22nd.

The measures, which the bank would be able to bring into force under its own powers, are expected to apply from July 2022, almost three years after the regulator decided to look into the issue of differential pricing in insurance.

The UK Financial Conduct Authority moved in May to proceed with a de facto ban on dual pricing in the home and motor markets.

While it has said that insurers are free to set new business prices, they cannot charge an existing customer looking to renew their policy more than the equivalent new business price.

Dual pricing

The bank's proposals do not go as far as the commitment from Fine Gael, Fianna Fáil and the Green Party in their programme for government last year to work on removing dual pricing from the insurance market.

However, the Department of Finance said it believes that the Central Bank proposal is “in line” with the Government’s insurance action plan.

Minister of State for Insurance Seán Fleming said it “was important to allow the detailed technical work be completed” and that any regulatory changes need to reflect “the specific circumstances in the Irish market, which is different to other larger markets”.

Gráinne McEvoy, director of consumer protection at the regulator, defended the organisation’s stance, saying it is “balanced and proportionate” and “reflective of the Irish market”.

She said the planned rules will still encourage consumers to “shop around” and help foster competition in the market.

"There is a need to avoid unintended consequences," said Derville Rowland, director general for financial conduct at the Central Bank. "We don't want the ban to prevent a balanced approach where discounts available to new customers are eradicated."

However, she said that charging loyal customers a “loyalty premium” has “no place” in the market.

Ms Rowland insisted that the timeline of the Central Bank review and the plan to introduce the changes 12 months from now was the “fastest possible” pace at which the regulator could act.

"We are in the leading group in Europe to have moved on this," she said. "It is absolutely essential that we analyse our market to see what are the prevailing characteristics, the prevalence of the features, and impacts on various customer groups. And it is also very important that when you intervene like this, that you get it right."


For the review, the Central Bank said it captured 90 per cent of the car and motor markets as it collected 11 million policy records, spanning three years. It also carried out a survey of about 5,500 consumers.

It estimated the extent to which loyal customers are paying over the odds for coverage by comparing actual premiums against a “technical premium”, which is an insurer’s view of the cost of pricing the policy.

Where new motor customers typically benefit from a 2 per cent discount to the technical premium, someone who has been with an insurer for at least nine years is charged, on average, 25 per cent more than the break-even threshold.

The bank said it is proposing that motor and home insurers review their pricing policies and processes annually. It also plans to a make insurers secure the consent of customers in cases where policies are automatically renewed.

It is also considering additional measures in relation to complaints resolution, transparency and dealing with vulnerable customers as part of an upcoming review of its general consumer protection code.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times