Following the completion of its Differential Pricing Review and the publication of its Final Report and Public Consultation, on 15th March 2022 the Central Bank of Ireland published the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Insurance Requirements) Regulations 2022 which apply from 1st July 2022, along with a Q&A document to be read alongside the Regulations, which have since been updated for clarifications on effective dates.
The Regulations apply to both Insurance Undertakings and Intermediaries operating in Ireland, with the price walking and annual review aspects applying to home and motor insurance only, and the automatic renewal aspects applying to all non-life insurance policies. The requirements can be broadly categorised as follows:
Price Walking Ban
The Regulation bans “price walking”, meaning that insurance providers cannot charge a year two renewal price which is more than the equivalent first renewal price. This ban is effective 1st July 2022, with the Central Bank clarifying on 6th May, that while the ban is effective 1st July, it acknowledged that since some renewal notices for policies renewing after 1st July are issued prior to the commencement date of the Regulations, there may be practical and operational difficulties with ensuring that the renewal notice, and related policy documents are compliant with the Regulations. The Central Bank has recognised that this may mean some of those policies may not fully meet the requirements of the Regulations, however confirmed that firms are expected to comply with the spirit of the Regulations in any pricing decisions made prior to 1st July, which will impact policies renewing after that date.
From an Intermediary perspective, it’s important to note that while you might not be responsible for setting the Insurers premium, if there are other aspects of the Consumer’s premium that you are responsible for setting, you must ensure that no price walking or tenure discrimination exists on those aspects. Common examples here will include any service fees or direct debit fees you charge, discounts which you control, and add-on products where you have any control over the pricing of those products, i.e., the cost associated with that aspect should be no higher to a Consumer at a year two renewal, versus a Consumer at a year one renewal. You can find more examples in the Central Bank’s Q&A document, available on its website. In addition, the Regulation sets out specific requirements regarding how the equivalent first renewal price should be determined in relation to the channel and payment method used by the Consumer. From an Insurance Undertaking perspective, it will be interesting to see the customer reaction to the regulations as there is a media perception that the premium for the second renewal year cannot increase, however the guidance is clear this is not the case. The impact of this perception could lead to a high level of pricing related complaints. While as noted above, the Q&A document clarifies that the regulations apply to all new policies and renewals from 1 July 2022, it acknowledges the potential practical and operational difficulties with ensuring that the renewal notice, and related policy documents are compliant with the Regulations. What’s key is that Insurance Undertakings and Intermediaries ensure they are working to ensure they are complying with the spirit of the regulations prior to 1 July 2022. Consideration also needs to be given to policies where a customer makes changes during the term of the policy, as the new terms of the policy may mean that the second years premium is substantially different to the initial premium.
In determining the equivalent first renewal price, the Regulation clarifies that we can assume the Consumer is using the same channel that they used at the previous renewal, and that the same payment method is being used. The Regulation also provides guidance on how to handle calculations of equivalent first renewal price where the policy is in a Closed Book