The FCA's report into insurance pricing is deeply troubling

Here’s a truth that the Financial Conduct Authority has just underlined: You should never be loyal to an insurance company. Never.

Being loyal to an insurer is like being loyal to a takeaway with a zero star hygiene rating that chucks the festering leftovers in the pan when they see your number flashing up on the phone.

The watchdog says it has found “a number of areas of potential consumer harm” in its work on general insurance pricing, including rule breaking by firms when it comes to policy renewals.

In English, that means it’s concerned that people are getting ripped off.

It has long been known that insurers are apt to jack up the price to their existing customers at renewal time, while reserving the sweet deals for new ones.

The fun part is that the watchdog seems to be saying that accident as much as design rules when it comes to the way prices are calculated.

“The FCA’s supervisory work on home insurance found other issues which could cause harm to customers, including firms failing to have appropriate or clear pricing strategies, governance and controls,” it declared.

That’s basically saying that at least some of them are making it up as they go along.

Hey! Let’s pluck a number out of thin air. Or just add 10 per cent on to what Mr and Mrs Smith were paying for their Vauxhall Astra. They’re getting on a bit, so they’re not likely to check out gocomparetheconfusedprice.com and we should get a nice bonus out of that!

Not to put too fine a point on it, but insurers have recently been making a big fuss about whiplash, and the cost to them of other compensation claims made by people hurt by bad drivers.

It’s our policyholders this hits, they say. If claims costs rise, so do their prices.

And yet, if you look at a year like, say, 2016, claims costs actually fell while premiums hit a record.

A study by Capital Economics blew up the myth that dodgy compensation claims are the reason for rising premiums, pointing to a range of other drivers. This work adds further weight to its findings by suggesting that sharp practice is one of them.

So what next? One of those dear CEO letters has gone out warning insurers that they need to start behaving themselves, with the threat of action looming against those that don’t.

There’s also a market study being conducted into insurers’ pricing strategies and the way they impact upon consumers, which could lead to some much needed reforms.

The FCA is particularly concerned about vulnerable people, who might not have the facility to make use of switching services.

It says it believes the insurance market is competitive. I’m not so sure about that. The Capital Economics study pointed out that there are just nine underwriting groups active in the UK. It looks more competitive than it is because they operate through multiple brands that sometimes offer different prices.

Price comparison sites can still save you money if you use them. And you probably should. But it’s clear that their existence is not a cure all. It’s time for some more aggressive treatment.