Tuesday 20 August 2019

Insurance crisis: companies accused of using private data to rip off loyal customers

Insurers have been accused of using big data to single out vulnerable customers for higher prices. Stock image
Insurers have been accused of using big data to single out vulnerable customers for higher prices. Stock image
Charlie Weston

Charlie Weston

Insurers have been accused of using big data to single out vulnerable customers for higher prices.

Several insurers in this market are using so-called dual-pricing software to identify customers who they can overcharge, it has been alleged.

Regulators in Britain have threatened to fine insurers engaged in the practice which sees loyal customers paying higher prices when they renew home and motor cover.

But the Central Bank of Ireland is stonewalling on calls for it to say if it is even aware of the use of big data by insurers to cherry pick vulnerable customers for higher prices - or so-called dual pricing.

Asked a number of times if it is aware dual-pricing software is being used by insurers in this market, the Central Bank refused to answer the question directly. It instead insisted it does not have a role in pricing by insurers.

A spokesperson for the regulators refused to answer when it was put to them that dual pricing is a consumer protection issue.

Dual pricing is the practice where insurers sign up customers on artificially low premiums for the first year and they quote hugely inflated premiums to renew policies.

Customers less likely to shop around and older people are identified and sent the highest renewal quotes.

Insurers are increasingly using big data - so-called price optimisation algorithm software - to work out which customers are susceptible to being charged an inflated premium, and to how much they will bear.

This is seen as exploiting loyalty. It means that two drivers who present the exact same risk may end up with hugely different renewal quotations. This is because the price optimisation algorithm indicates one of the customers is less price sensitive.

Michael Kilcoyne of the Consumers' Association said dual pricing was anti-consumer and punished vulnerable customers for their loyalty.


In Britain, the Competition and Markets Authority and the Financial Conduct Authority are both investigating insurers there over the penalising of loyal customers through dual pricing.

Asked if it had any plans to probe Irish insurers over dual pricing, the Central Bank here would only say it will consider the work being undertaken by the UK's Financial Conduct Authority and any further output.

A report compiled by leading consultancy to Irish insurance companies, Milliman, states: "Several Irish insurers and brokers have embedded price optimisation algorithms within their pricing."

It added that regulators here have yet to express an opinion "specifically on price optimisation", despite the controversy around the practice in Britain.

It admitted it was an "often controversial technique".

"Price discrimination is an integral part of the competitive process in many markets," says the report, entitled 'Price optimisation for personal lines insurance in Ireland'.

Milliman had no comment when asked about the report by this publication.

Consultancy Willis Towers Watson - which supplies the Radar Optimiser software used by most insurers - would not say how many insurers in the State have bought its product.

All insurance companies in this market were surveyed by this newspaper. Most refused to say if they engaged in dual pricing. A series of detailed questions was put to them.

RSA had no comment, and both Axa and AIG denied engaging in dual pricing.

Zurich had no comment on its pricing, while Liberty Ireland insisted it was fair to new and existing customers.

FBD admitted it had "invested heavily in analytics to enable competitive great value pricing for consumers and an excellent level of cover as standard". It insisted it was fully compliant with the Central Bank's consumer protection code.

Aviva insisted it tries to minimise price volatility for customers at renewal.

Allianz said it would not comment on whether it used price optimisation software as "this is commercially sensitive information".

Irish Independent

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