The loyalty penalty ban – where are we now?

A changing insurance sector - one year on

Last year many large personal lines insurers reported lower or flat profitability in their motor and / or home lines than originally forecasted, and cited the FCA ban as one of the reasons for this. Policies in force also dropped for many, a trend which may continue over the coming months.

New business average premiums increased last year at a greater rate than average renewal premiums, meaning many of the new pricing strategies deployed prioritised margin over growth. However, we also know firms were met with significant market challenges, and faced particularly strong headwinds from increased claims inflation. Further, the geopolitical environment has been volatile: inflation has soared, supply chains have been disrupted and there is increasing claims frequency post COVID-19. Therefore, it is difficult to isolate the impact on firms from the ban when there are so many other factors at play.

Of note is that recent data collected by Consumer Intelligence shows an upward trajectory of the average retention rate. This suggests that consumers may now trust their insurers more. If consumers are being offered a fairer price at renewal, they are less likely to shop around, which is a positive outcome for consumers renewing their policies, and for firms looking to retain customers.

Turning to the cost of living squeeze, predicting consumer behaviour is becoming more challenging for firms. Consumers will be looking to cut costs where possible, and non-mandatory insurance is an obvious choice. Research by Go.Compare has shown that a significant number of consumers do not intend to renew their home insurance this year, instead opting to self-insure against risks without fully understanding the potential consequences. This is further contributing to an uncertain landscape across the insurance sector.

Insurers are therefore increasingly competing for new business by launching tiered products under their various brands to meet diverse customer needs, all while aiming to remain profitable and visible on price comparison website (PCW) searches. This ‘brand stacking’ presents some challenges of its own, given PCW searches often produce multiple results all belonging to the same insurer. Insurers have a difficult task, they need to innovate to remain competitive, but must also ensure products continue to meet the demands and needs of their customers. Innovating whilst differentiating between brand products is key.

This evolving landscape, although uncertain, does provide firms with an exciting opportunity to offer more products, to embrace digital technology for improved efficiency and to find innovative ways of building consumer-focused products. We have already seen insurers attracting new customers by, for example, launching digital-only brands, and introducing telematics reliant usage-based insurance products to provide greater flexibility and to target new consumers looking for more flexible, short-term options.