In the News

Price Discrimination: FCA acts to end price gouging of loyal customers

Graham Watson

30th December 2021

News that that the UK car and home insurance market is going to be more closely regulated, with companies being prevented from charging existing customers more than new customers.

In the past, new customers were offered loss-leading rates, and this was subsidised by existing customers who failed to change their insurer on an annual basis.

In effect, charging a loyalty premium was an act of price gouging to exploit the like of perfect factor mobility in the market with the most vulnerable most likely to be the least frequent switchers between insurers, as illustrated by the fact that as the article states:

"When announcing its plans, the FCA pointed to an example in which a new customer for home insurance typically paid £130 for a year's cover. But for the same policy, having stayed with the same insurer for five years, that annual premium rose to £238."

I've always been an annual switcher - and only remained with my existing insurer if they could match the lowest quote - but this practice, which has been going on for many years is genuinely awful - and the fact that it wasn't widely known about is staggering.

I think it's one of the most egregious examples of an immoral business practice designed to exploit the poorest customers

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

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