Insurers consider a variety of factors when calculating the premium for the policy they’re offering a customer. It can vary depending on the insurer, the individual circumstances of the policyholder and the particular risk(s) the insurer is being asked to cover.
There’s no one ‘correct’ way for an insurer to assess the relevant risks involved with a policy, or to set the premium. There may be hundreds of variables an insurer chooses to consider when setting a premium – including its own commercial requirements. Whereas other insurers may choose to only consider a few. That’s their commercial decision to make. Each insurer is also entitled to take its own view on how to underwrite their policies.
However, insurers are required to give their customers clear information about the products they have and the price they are offering for the cover. Insurers are also required to treat their customers fairly. The price of an insurance policy is often a major deciding factor for a customer when buying insurance. Problems can arise if a customer doesn’t properly understand the price they are paying for the cover being offered or why the price may have changed at renewal (or, sometimes, even part way through a policy).
Types of complaints we see
We see complaints about insurance pricing at various stages in a customer’s journey with their insurer. Most complaints we see are due to an increase in price either at renewal, over a long period of time with the same insurer or following a particular event or change in the customer’s circumstances – which can sometimes happen mid-term (part way through the policy).
Some of the complaints we’ve seen from consumers include:
- their insurer based their premium on incorrect information or otherwise made a mistake when calculating the price
- their insurer gave them incorrect or misleading information about the price of their policy, so they couldn’t make an informed decision when buying it
- the customer feels they can’t change their insurer for a particular reason and they feel it’s unfair they have no say over the premium they are paying
- their premium has increased following a change in their circumstances, such as moving home or buying a new car
- their premium at renewal has increased following a claim on their policy
- the customer feels that they have not been treated as fairly as other policyholders in a similar situation
- the customer feels that their premiums have increased unfairly, without a proper explanation or justification
Handling a complaint like this
If you don't reply within the time limits, or the customer disagrees with your response, they can bring their complaint to us. We'll check it's something we can deal with, and if it is, we'll investigate.
We'll expect you to be able to show us that you've investigated the complaint thoroughly.
Find out more about how to resolve a complaint.
Information we will ask for when we receive a complaint
Once a complaint has been referred to us, we will ask financial businesses to provide information about their side of events.
The typical information we would normally expect to see about this type of complaint includes:
- policy schedule
- policy certificate
- full policy terms
- contact records
- underwriting information
- premium calculation breakdown
We may ask for further information or documents, depending on the circumstances of the case.
Read more about how we handle complaints.
What we look at
It is not for us to tell you what price you should charge for covering a particular risk, or how to assess and value that risk. We generally look at whether we think you’ve acted fairly and reasonably in the way you’ve set the customer’s premium, and whether you’ve communicated the price to the consumer in a way that is clear, fair and not misleading.
There are aspects of the price that we will look into further, depending on what’s relevant in a particular complaint:
- Discrimination – we’ll consider whether a customer has been treated fairly and consistently with your general approach to pricing and whether it is fair for you to rely on the evidence or data supporting a risk rating in an individual case.
- Misleading information – we’ll consider what you told the customer and whether that allowed them to make an informed decision about price.
- Mistakes – we’ll consider whether a customer’s premium has been calculated correctly, based on the information provided by the customer (which they must not misrepresent), and whether your general approach wouldn’t be appropriate in a specific case.
- Price increases over time – we’ll look to make sure you applied year-on-year price increases fairly, without taking advantage of a customer’s lack of engagement or loyalty.
- Restricted choice – if a customer doesn’t have freedom to change insurers and choose what premium to pay, we’ll consider whether you have treated them fairly.
If the customer is unhappy with the price they’ve been quoted, we’d typically expect you to provide evidence to show the reasons for the price and any increases, and that the same criteria would have been applied consistently. This might mean we ask for underwriting criteria and a breakdown and explanation of factors to explain the price – especially when the customer’s premiums have increased significantly, or substantially over time.
We recognise that underwriting information is confidential so will not be disclosed, but we do expect you to provide this information to our service.
If we’re satisfied you have communicated clearly, fairly and in a way that isn’t misleading – and you’re able to explain and evidence that the price was reached fairly following their underwriting guidelines, we’re unlikely to ask you to do anything to put things right.
But if a price increase involves a misrepresentation, we may consider these cases differently. You can find our approach to complaints about misrepresentation and non-disclosure on our website.
You can find out more detail about how we deal with specific pricing complaints below.
When an insurance policy is updated or modified due to a change in their customer’s circumstances, or in the key details, part way through the policy (mid-term), the insurer will have to review the new information and decide what it means for that policy. For example, whether the risk has increased or decreased.
Depending on the outcome of the review, the premiums may increase, decrease, or remain the same, depending on the terms of the policy and the insurer’s underwriting criteria. We see complaints when a customer is unhappy with an increase in their price and they can’t understand how their change in circumstances poses a greater risk to the insurer.
Generally, we don’t consider it’s fair for insurers to charge for mid-term changes that aren’t fundamental changes in risk. This is because the insurer offered the customer an annual contract and should expect some minor changes during that time that don’t alter the risk they agreed to cover. So, we’ll first consider whether the change in the customer’s circumstances presents a fundamental change in risk.
For example, in motor insurance, a change of vehicle, changes to driving licences or a change of address may be a fundamental change in risk, but a change to occupation that isn’t at all relevant to a consumer’s driving is unlikely to be.
If there has been a fundamental change in risk, we’ll want the insurer to evidence that only the elements they are recalculating are those that relate to the changed circumstances or detail. We wouldn’t think it’s fair that all risks are re-rated at the mid-term point if these haven’t changed from what was there at inception – especially if the insurer’s pricing model has changed since then, given the customer’s policy was based on the pricing model from an earlier date.
For example, if a customer changed cars part way though a policy, we would think it’s fair for an insurer to look at the change in car – but not whether their postcode may have an increased rating since the policy was first taken out.
If we don’t think an increase in price part way through the policy was fair, we’ll ask the business to put the consumer back in the position as though the increase never happened. This may include refunding the difference, plus interest. We’ll also consider whether an award for distress or inconvenience is appropriate.
But, if the insurer can show the increase in price relates solely to the change in circumstances, which was a fundamental change in risk for the policy, we’re unlikely to find the insurer did anything wrong.
We also see complaints from customers who say their insurer increased their premiums because of something they forgot to tell the insurer about when they took out the policy and the insurer thinks there’s been a misrepresentation. Our page on misrepresentation and non-disclosure explains more on how we approach these cases.
We see some complaints where customers renew their policy based on the information you gave them at the time, but they later feel they’ve been misled by it, and unfairly encouraged to renew the policy without shopping around.
We’ll check to see what information you provided your customer and whether you set out everything we’d expect you to, in a clear and unambiguous way. This will also include any follow up calls or emails between the parties, which we’d expect you to provide.
We’ll look at exactly what was said and whether any guarantees or promises were made to the customer about the price or the value of the policy. For example:
- If the insurer said, “we guarantee to be the cheapest insurer”, we would consider this to be a direct promise. If a customer then demonstrated this was untrue, we’re likely to agree that this was misleading.
- A renewal document might say “this is our cheapest policy” or “we’ve applied a loyalty discount to your price”. In these cases, we would expect the insurer to be able to demonstrate that what they said was accurate. And, if it is, we’re unlikely to find the insurer did anything wrong. If not, we’re likely to find the information misleading.
- However, if the insurer said something like “we strive to help our customers by regularly reviewing how to offer better value for money”, this doesn’t make any direct promises to reduce the price, or otherwise guarantee a low price. So, we’re unlikely to find the insurer did anything wrong.
Overall, we’ll make a judgment on a case-by-case basis about whether the renewal information was clear. This will depend on the circumstances of the complaint, including the reasons why the customer felt they were misled. And, if you made any price, service or value promises, you’ll need to provide evidence to show us what they did to fulfil those promises.
If we think the information you provided was clear, we’re likely to decide that you acted fairly. If not, we’ll go on to consider the impact of the unclear or misleading information on that particular customer, and whether they have lost out as a result.
If the customer paid more than they could have done for their insurance cover, we might ask you to refund the difference, plus interest. We’ll also consider whether we think it appropriate to award compensation for any distress or inconvenience caused.
An insurer will choose which factors it considers to be relevant when setting the price they wish to charge in order to accept a certain risk, and how much weight to attach to each factor, depending on the type of policy they’re offering. For example, the customer’s address, age or occupation might be relevant – or the model of the customer’s car or type of house.
If any of this information is incorrect, this may lead to the customer paying more than they should for their insurance cover.
There can be a number of reasons for incorrect information being used to price the policy, such as:
- The insurer had to make an assumption because the relevant information wasn’t available. With buildings insurance this could be when the insurer doesn’t know the number of bedrooms in a property and uses an assumption based on a postcode, to complete the missing information.
- Calculation or human error – for example, the wrong postcode is inputted, or the no claims bonus is incorrect in the insurer’s systems, or the claims information is incorrect.
We see complaints when a customer thinks the price of their policy was calculated incorrectly, or otherwise their insurance premium was based on incorrect information. We’ll look to see whether the information the insurer used to set the premium was correct at the relevant time and, if not, whether any errors were caused by the insurer.
Insurers may sometimes say the mistake was made by the customer when providing the details for their policy, and the insurer believes certain information was misrepresented to them. We consider these cases differently, and you can find further guidance about our approach to misrepresentation and non-disclosure.
If we find a mistake has been made when pricing the customer’s policy, we'll check to see if the customer has suffered a loss as a result. This may involve asking the insurer to re-price the policy with the correct details.
If the customer has suffered a loss as a result of an error made by the insurer, we’d expect the insurer to refund any difference in price, plus interest. We’ll also consider whether we think it’s appropriate to award compensation for distress or inconvenience.
Some customers might complain the insurer failed to give them all the information they needed to make an informed choice when they contacted the insurer to try to get a better price at renewal.
If we see complaints like this, we’d want to check the customer has been treated fairly and been provided with clear information about their options.
We’d look at what the customer said when they engaged with you and whether it was clear what they were looking for. If you had a cheaper alternative policy available when a customer enquired about reducing what they were paying, we think it’s fair this should have been discussed with them – provided it was available through the same brand and sales channel (eg online, in branch, or over the telephone).
If we’re satisfied you made the customer aware of their options, including alternative policies, we’re likely to think you acted fairly. That’s because you gave the customer the opportunity to access other policies and then it was up to the customer if they wished to explore that further.
If we don’t think the customer was made aware of alternatives, we’ll need to consider why there was a difference in price and whether the customer has been treated fairly. If there’s not a clear and understandable reason for a price difference between similar policies of the same brand name – and the customer wasn’t made aware of alternatives – we may think the customer has been treated unfairly.
If we think you failed to provide enough clear information to the customer about their options to lower their renewal premium, we’ll need to consider what the customer would have done, if they’d been given better information.
We might decide the customer would have taken a cheaper alternative policy and ask you to refund the difference in price, with interest added. We’ll also consider whether to award compensation for distress or inconvenience.
We see complaints from consumers whose policies have auto-renewed over several years with the same provider without any engagement on their part in the renewal process.
The consumer has seen their premiums rise steadily over time with year-on-year increases and this can lead to a significant difference in cost from the start to what they are paying now. After a consumer realises that they could have had insurance for less than they paid, they may raise a complaint that they’ve been overcharged for years.
There may be a number of reasons for no previous engagement:
- The consumer’s personal circumstances mean they’ve been unable to engage, which makes them vulnerable.
- Lack of access to technology and the ability to shop around.
- The consumer stayed with their insurance provider out of loyalty and they thought they would be treated fairly, in the same way as other consumers.
- The consumer believed they had to stay with the same provider as the policy was linked to their mortgage.
- The consumer chose not to engage at renewal stage.
The FCA recognises there’s been an issue with how some home and motor insurance premiums have increased over time and refers to this as “price walking”. This includes where insurers applied a ‘new customer discount’ to the policy when it was first taken out and increased premiums over the first few years to recoup that discount. It recently introduced new rules that come into force on 1 January 2022, which sets out how insurers must treat existing customers at renewal with the price it offers. You can find further guidance about this on FCA’s website.
While it’s not our role to tell insurers how to price their policies, we need to make sure they’re treating their customers fairly and consistently, and not taking advantage of any particular groups of customers.
When a customer has been with the same insurer for many years and always accepted the renewal price offered without question, we want to be sure they’ve been treated fairly and that the price hasn’t increased without fair reasons.
There may be reasons for the price increases. For example:
- There may have been fundamental changes in how the insurer views a certain risk, or a change in claims data eg when a home insurance provider learns more about an area and this increases the flood risk ratings.
- The customer may have made multiple claims.
We expect you to demonstrate you’ve treated consumers fairly when pricing the policies they offer. So, we expect to see an explanation to support how prices have moved over time, explaining any increases that have been applied to a policy and how this represents the customer being treated fairly. This might involve asking for underwriting criteria and a breakdown of factors that led to the price increases.
If there’s been a change in risk over time, we would expect you to show that it’s being consistent with its approach to that risk and not disadvantaging customers. For example, if premiums have increased due to an increased flood risk, we would want to make sure ‘Flood Re’ was offered where appropriate, if available, to enable the customer to pay a lot less for cover. We may also want to see you was applying a consistent approach to the same risk across similar policies and customers.
If you can show an increase over time in the customer’s premiums were justified, and that those increases were applied fairly and consistently for all customers in similar circumstances, we’d likely say the customer has been treated fairly with how their policy has been priced.
If this can’t be demonstrated, and we think the price of the policy increased unfairly while the customer wasn’t engaging with their renewals, we may say this is unfair. We would expect you to put the customer back in the position they would have been in, had they been treated fairly. So, we’d ask them to refund the amount charged for the policy from when we think the price increased without fair reason, plus interest.
Insurers have specific obligations when contacting policyholders to let them know their policy is ending and inviting them to renew their cover, as set out in ICOBS and the FCA regulations. This includes the rules the FCA introduced in April 2017 to increase transparency and engagement from customers at renewal stage. Full guidance can be found on the FCA’s website.
You need to make sure the information you provide your customers is clear, fair and not misleading to allow them to make an informed choice when deciding whether to accept the price offered and renew their cover with the same insurer.
The renewal premium is a key point for both you and the customer. This should be communicated clearly and prominently on the renewal documents, as well as the level of cover provided for that price.
Issues can arise when customers feel they were misled by certain information or wording you provided, or that it otherwise wasn’t clear.
Putting things right
If we think you have made a mistake or treated a consumer unfairly, we'll ask you to put things right. Our general approach is that the customer should be put back in the position they would have been in if the problem hadn't happened.
The exact details of how we'll ask you to put things right will depend on the complaint, and how the customer lost out. In some cases, we may also ask you to compensate the customer for any distress or inconvenience they've experienced as a result of the problem.
Business Support Hub
If you want to talk informally about a complaint you've received, you can speak to our Business Support Hub. They can give general information on how the Financial Ombudsman might look at a particular complaint. We also offer guidance on our rules and how we work.
Find out how to contact the Business Support Hub.
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