The Central Bank has said it is concerned about weaknesses it has identified in the pricing practices used by some insurance companies, following completion of the first phase of its investigation into the use of so-called "differential pricing" in the insurance market here.

The bank has found that some firms may not be adequately considering the effect of their pricing practices on their consumers, potentially leading to poor customer outcomes. 

An analysis conducted in recent months by the bank established that while some firms claim they do not use differential pricing, the majority of firms do actually utilise it through various techniques.

It also discovered that in some insurers, there are inadequate governance and control arrangements.

These include insufficient evidence that Boards of Directors have appropriately considered or discussed the impact of their firms' differential pricing practices on their customers. 

The study, which involved 33 inspections and meetings with 11 firms, also concluded that there was insufficient evidence of a customer focussed culture in respect of pricing decisions and practices at some insurance companies.

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Differential or dual pricing is the practice of differentiating between customers for reasons other than the expected cost of claims and expenses.

Those who use the practice, including insurers, utilise sophisticated data analysis techniques to build up a profile of customers.

They can then use that information to, for example, charge customers who are less likely to shop around at renewal more than other clients who are more likely to seek alternative quotes.

Minister of State at the Department of Finance, Sean Fleming, said he would meet with the Central Bank later this week to discuss the review.

"In addition, both Finance Minister Paschal Donohoe and myself will raise this issue with Insurance Ireland in the coming weeks as part of the Government's engagements on insurance reform.

"I expect that insurance firms will respond to these concerns in a positive manner and cooperate with the Central Bank.  Furthermore, this should assist in progressing the next phases of the review."

In January, the Central Bank began a review of pricing in the motor and home insurance markets.

This followed a complaint by Sinn Féin finance spokesman Pearse Doherty that there was evidence that differential pricing was being used to take advantage of consumers.

Today, following the conclusion of the first phase, which involved a market analysis of whether differential pricing was being used and if it is in line with the consumer code, the Central Bank has written to insurers, managing general agents and intermediaries here to inform that immediate action is required on a number of fronts.

The regulator wants insurers to assess their own pricing methodologies against the Central Bank's definition of differential pricing.

"If a firm does not consider its pricing practices to fall under the definition of differential pricing, the rationale for this should be clearly documented and agreed by the Board," the letter from Derville Rowland, Director General of Financial Conduct at the Central Bank, says.

The companies are also being told that they need to take responsibility at board level for the impact of differential pricing on customers, "to ensure a firm's pricing practices are well-governed, controls operate effectively and appropriate oversight is in place, with roles and responsibilities for pricing activities clearly defined."

The bank also wants insurers to ensure a fully embedded consumer protection risk framework is in place to manage risk and drive positive behaviours. 

"Policyholders have a reasonable expectation that their insurance firm will act with honesty and fairness, and that the will act in the best interests of their customers," said Grainne McEvoy, Director of Consumer Protection at the Central Bank.

"This includes having in place a pricing policy that is fair, transparent and discloses material information to customers in a way that is informative."

"Failure to recognise and / or acknowledge the practice of price differentiation raises significant concerns about a firm's ability to assess this impact."

The regulator is now seeking documented evidence that the issues it has identified have been fully considered and that firms clearly understand their differential pricing practices and the impact they have on clients.

The bank also wants firms to demonstrate how their pricing practices adhere to the Consumer Protection Code 2012.

"This vindicates what we've been saying," said Pearse Doherty.

"Insurers have been ripping off loyal customers, vulnerable customers and the practice should be banned.

Sinn Féin spokesperson on finance Pearse Doherty commenting on insurance findings today (pic: Rollingnews.ie)

"We've had the industry before us last October telling us there is nothing to see here. There's a lot to see here. It is banned in nearly 20 states across America and it should be banned here also," Mr Doherty added.

Phase 2 of the analysis has now commenced, involving a quantitive analysis of more than 10m individual policies and the gathering of insights from around 5,000 consumers through focus groups and surveys.

It will assess the degree of differential pricing among car and home insurance policies and the bank intends to have the entire review concluded by next year.

"The primary objective of this review is to ensure that customers are being treated fairly, given the increasing sophistication of big data and modelling techniques within the insurance industry," said Ms McEvoy.

"While work on the review is ongoing, the issues we identified during our evidence-gathering phase are of sufficient concern that we are requiring action now from relevant firms."

The Central Bank has previously warned that it will consider banning dual pricing if its review finds that insurance companies that use it are not acting in the best interests of their customers. 

The regulator cannot intervene on pricing or competition issues in the insurance market but can act where the actions of regulated firms such as insurers threaten the Consumer Protection Code.

Grainne McEvoy said it was far too early in the process to consider whether dual pricing needs to be banned.