The financial watchdog may have finally brought insurers to heel

The FCA’s honest, simple ban on ‘price walking’ could end a long-running business model that punishes customer loyalty

When it first looked at insurers’ price-gouging tactics a couple of years ago, the Financial Conduct Authority floated the entertaining idea of getting the entire UK population to renew, or switch, its car and home insurance policies on the same day every year.

It used to work well in Hungary, apparently. A one-day frenzy ensured there were fewer opportunities for companies to mug the lazy and unwary. When customers were paying attention, the best prices followed.

Sadly but inevitably, the financial regulator hasn’t chosen Hungarian-style fun. The FCA proposes a different fix: an effective ban on “price walking”, the practice of hooking a customer with a teaser rate and then slipping in sneaky price rises year after year. If the proposals are implemented in the second half of next year, anybody renewing their policy should be charged the same price as a new customer.

There’s something odd about a regulator banning, in effect, introductory offers, which are standard practice in many industries. On this occasion, though, it’s entirely justified. The insurance industry has turned a marketing gimmick into an entire business model that seeks to punish loyalty. And the position has become worse with customer-profiling techniques that deny the best rates to those who can be bothered to shop around.

In the retail energy market, the solution to a similar problem was price caps on default tariffs. The insurers should count themselves lucky that they’ve avoided that fate. In fact, they should be grateful: the teaser treadmill is expensive to maintain.

The FCA assumes savings in companies’ customer-acquisition costs will be passed onto consumers, which is how it arrives at its estimate that punters, as a whole, will be better off by £3.7bn over a decade. Let’s see if those savings actually flow to customers in price; insurers can be inventive. But the FCA is still right to act: honest pricing is better.

A DIY job done well at Kingfisher

Kingfisher is sending £23m of furlough money back to the Treasury because it’s too embarrassed to keep it. The owner of B&Q and Screwfix is enjoying its best sales figures in years as “people rediscover their homes and find pleasure in making them better”, as the chief executive, Thierry Garnier, puts it with a flourish. Stuck-at-home office workers have turned DIY and gardening into boom markets.

Like-for-like sales growth of 16.6%, as Kingfisher has seen since the start of August, cannot last forever but the pace should be enough to kill any lingering talk about breaking up a pan-European group that also includes Castoroma and Brico Dépôt in France.

In fact, Garnier had probably succeeded on that front already. By abandoning his predecessor’s tired “unification” mantra, he’s restored some confidence among investors. The chains now have more freedom to tailor their offers for local markets, which looks like an act of common sense.

A new one-for-one share-matching scheme for staff also deserves a mention. There’s a cap of £1,500, so the sums are never going to be life-changing, but it signals a new strategy. Other companies might copy it for different reasons. Many shop staff still in work have lost earnings via furlough and enforced part-time hours; a low-risk share bonus scheme is a cheap catchup mechanism.

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Premier Inn finds no room to manoeuvre

By way of contrast, Whitbread’s response to next month’s end of the furlough scheme is to make up to 6,000 staff redundant, mainly housekeepers and receptionists. At the maximum, this would represent about 18% of its entire workforce.

In the absence of a replacement scheme from the Treasury, the move is sadly predictable. Even in August, the strongest month since lockdown for the group’s Premier Inn chain, the hotels were only 51% full on average, versus 80% in a normal year.

Attempting to sustain the spirits of investors, the chief executive, Alison Brittain, pointed to a strong balance sheet (reinforced by a £1bn rights issue) and “enhanced structural opportunities in the medium to long term”. The latter mainly means chances to grab properties at lower prices in Germany, the big hope for a replica Premier Inn business.

Yes, if looking over the horizon, that makes sense. The short term, however, is all about chancellor Rishi Sunak’s generosity – or otherwise – in extending VAT and business rate holidays and other support mechanisms for the hospitality industry. It’s not much to cling on to.


Nils Pratley

The GuardianTramp

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