Differential pricing may have ‘detrimental effect’, study says

Central Bank report finds enhanced technology has made practice more widespread

Enhanced technology and digitisation has led to increased price differentiation, with benefits and costs for Irish consumers, a Central Bank of Ireland study has concluded.

Dual or differential pricing refers to the practice of setting different prices in different markets for the same product or service.

The most common form is where insurers, typically in the motor and home insurance market, offer new customers better rates than those renewing their policies, effectively charging existing clients a premium for not shopping around.

The Central Bank is currently examining the practice in Ireland amid concern that it is being practiced more widely than providers admit, and to the cost of consumers.


The latest study, separate from the regulator’s investigation, finds that enhanced technology and digitalisation have increased the potential “for more sophisticated forms of differential pricing, with the possibility for prices to be tailored to each individual.”

However, the report concludes that this can have both benefits and costs for consumers.

While it can encourage customers to try new products and promote competition, it can have a “detrimental effect” on what it calls “distributional equity”.

It also said it was critical that consumers and businesses not be harmed as a result of pricing models adopted by insurers operating in the Irish market.

Addressing issue

Umbrella group Brokers Ireland said the study marked "a step along the way towards addressing the issue".

"The report raises concerns about market features or firm actions that serve to reduce the propensity of customers to shop around for better offers or to negotiate," the group's Cathie Shannon said.

“However, there is a way to go before we know what action, if any, the Central Bank will take in its ongoing investigation of differential pricing in the Irish home and motor insurance markets,” it said.

“The reality is while technological advancement facilitates shopping around, consumers don’t necessarily have the knowledge required to distinguish between the different products available to them to identify the optimum one to suit their needs, or indeed the time to undertake the necessary research,” the group said.

“Often, the cheapest product will not be the right one for the customer, or indeed another insurer might have a better product available for that customer at a lower cost,” she added.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times