The last year has brought all new challenges for the insurance industry. We can thank the COVID-19 pandemic for many of these – insurers have seen a blizzard of new claims coming in for everything from indemnity insurance to business interruption insurance and more. But some of these changes have come from a more organized source: the Financial Conduct Authority.

One of the major changes the FCA made last year was announcing an upcoming dual pricing ban. Read on to learn more about this ban, what dual pricing is, and what the insurance industry might look like without it.

Recent FCA Ruling

For the last year or so, the FCA has been investigating a common practice among insurers called dual pricing. In this model, insurers and brokers reduce a premium price to draw in new customers. Once they have them locked into a contract, they gradually increase the price until customers are paying the real market value of the policy. 

Last year, the FCA announced that they intend to ban this dual pricing policy in coming months. While it’s easy to see the draw behind the model for insurers, it breaks down the trust between insurers and their clients. The FCA is expected to put in a cold turkey ban sometime this year.

What Is Dual Pricing?

Dual pricing works something like this: when you first decide to buy an insurance policy, you reach out to an insurance agent or broker. They tell you that your premiums for the policy will be £100 per month. You sign up, and for the first year, you happily pay £100 per month, as agreed.

But when it comes time to renew your policy, you suddenly see that your policy is no longer £100 per month. It’s gone up to £125 per month, and when you call your agent or broker, they give you some line about changing markets and increasing prices. Each year that you stay with the company, your premium increases just a little until you’re paying the real market value of the policy and not the initial lower price they used to hook you in.

Why the FCA Banned It

At first glance, the dual pricing model may just seem like good business practice. You give new customers a better deal to as an incentive to sign up for your services. They save money, you get a new customer, and you can make back those discounts in the coming years.

But the problem arises when insurers don’t tell their new customers that the price they’re getting today isn’t the price they’ll be paying for good. They may be choosing one company over another based purely on that price, rather than the services each provides. When the price changes, the customer may feel tricked, trapped, and that they can’t trust their insurer. 

How Pricing May Change 

You may not be surprised to learn that many insurers expect to have to change their prices due to the new dual pricing ban. Critics of the decision claim that premiums will have to be higher to cover the revenue they may lose as a result of the ban. And while we may see pricing go up slightly, that isn’t likely to be the case across the board.

Many insurers who were using the dual pricing model already made up the money they lost on discounts later in the process. If pricing is equal across the board, insurers may actually be able to lower their baseline prices slightly. Customers may pay more in the early years of their policy than they might have before, but they’ll pay less in the long run.

How Insurers Can Adapt

With dual pricing strategies off the table, insurers will need to refocus on what makes them stand out from the competition. In the past several years, competing has become a matter of getting the lowest prices by any means necessary. But when everyone’s on an even playing field with their prices, companies can focus on the value, service, and protection they can offer their customers.

If you’re transitioning away from dual pricing, sit down with your marketing team and start by reviewing your company mission statement and ideals. Compare services you offer and services your competitors offer and make plans to highlight the services that set you apart. Also, take a look at your customer data, figure out what they value most about your service, and focus on promoting that.

Other FCA Work Last Year

The dual pricing ban isn’t the only work the FCA did to change the insurance industry last year. In the face of the COVID-19 pandemic, thousands of businesses filed business interruption claims. However, insurers tried to deny these claims on the grounds that their policies weren’t designed to cover pandemic conditions.

The FCA sued the insurers denying these claims, and the case went all the way to the Supreme Court. Recently, the Court ruled in favor of the FCA, declaring that insurers had to pay out the claims in question. This is likely to be a landmark case, transforming how insurers specify what their policies do and don’t cover.

Learn More About the Dual Pricing Ban

Dual pricing has been an effective, albeit somewhat unethical, marketing method in the insurance company for years. But with the new FCA dual pricing ban, companies will have to shift how they market themselves to customers. In the long run, it may save customers money, and it will help to rebuild the degraded trust between customers and their insurers.

If you’d like to discover what the future of insurance without dual pricing will look like, check out the rest of our site at Gallagher Basset. We guide, guard, and go beyond to protect you, your company, and your customers. Contact us today and discover what the future of insurance could look like for you and your business.