Dual pricing: FCA bans sneaky premium-inflating costs

What is dual pricing in insurance?

Dual pricing (also known as price-walking, or the loyalty penalty) was a sneaky practice that some insurers used to get customers through the door.

They offered you a super low premium for the first year. But when it was time to renew your policy, they’d bump up the cost of your car insurance, and hope that you wouldn't notice.

In 2018, around 6 million customers were overcharged due to dual pricing — paying a combined £1.2bn more than they would have if they were charged based on their actual risk.

We thought this was really unfair. These insurers were charging existing customers more than they would charge a brand new customer, for the exact same policy — basically punishing them for being loyal, and not switching to a different provider.

Luckily, the Financial Conduct Authority (FCA) agreed with us - and it finally banned dual pricing in the UK this year.

The FCA banned dual pricing at the start of 2022

Insurers are no longer allowed to charge renewing customers any more than they would charge a new customer for the same policy.

This is having quite a few interesting effects for the insurance industry.

The cost of insurance might actually go up

Insurers are no longer able to give attractive offers to new customers, unless they can continue to offer those same rates the following years.

While the initial impacts are still being felt, some insurers might not be able to do offer their initial lower rates - so premiums for new customers could go up.

This is similar to what happened in 2012, when a European Parliament ruling meant that insurance could no longer charge young men more than they charged young women. The average premium for men didn’t go down that much (if at all) but it went up significantly for women.

We’re not sure if this is exactly fair, either. So hopefully insurance companies will start to spread out the introductory discounts that they used to offer, so that both new and existing customers can benefit.

There are some upsides though

Since insurance companies now aren't able to draw customers in with introductory offers that they can’t keep up, they might have to start improving their service offering if they want to stay competitive.

For example, some of them might have to look into offering better customer service (not to toot our own horn, but customer support is something that we do pretty well).

They might also start looking into different ways to help customers save on their policies.

And it’s one less dodgy trick that insurers can play on their customers, which may improve the reputation of the industry. After all, insurance is supposed to be a contract of trust!

What is the Financial Conduct Authority (FCA)?

It’s an independent public body that keeps an eye on the UK financial services industry.

Its main job is to make sure financial service companies give their customers a fair deal, and to protect customer’s money.

Any company that provides regulated financial services in the UK must be FCA authorised - this includes insurance companies, banks, and many others.

Cuvva is regulated by the FCA!

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