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Differential pricing: CBI imposes requirements on insurance companies

  • Ireland
  • Insurance and reinsurance
  • Financial services



On 9 September 2020, the Central Bank of Ireland (“CBI”) published a summary of its findings following the completion of the first phase of its three-phase review of differential pricing in the private motor and home insurance sectors.

The CBI also outlined a number of steps that it expects insurance companies in the private motor and home insurance sectors to take immediately, to address the concerns it has set out in a separate “Dear CEO” letter to the firms.


In November 2019, the CBI wrote to the insurance sector informing it of the CBI’s intention to carry out a three-phase review of differential pricing in the sector.

The CBI has defined differential pricing as:

“a circumstance or practice whereby customers with a similar risk and cost of service are charged different premiums, for reasons other than risk and cost of service. This includes the use of any modelling technique or the application of a non-risk adjustment during the pricing process which leads to customers with a similar risk profile and cost of service being charged differing premiums.”

Differential pricing might arise, for example, where an insurance company might offer different insurance premium quotes to customers with a similar risk and cost of service profile, depending on their likelihood of switching to a different insurance company.

The CBI has completed the first phase of its review, a market analysis, and it has now commenced the second phase (a quantitative analysis of the degree of differential pricing in the market). This will be followed by the third phase, in which the CBI will set out its final findings and recommendations.

The CBI has stated that, given the weaknesses it has found as part of the first phase of its review, it was sufficiently concerned to communicate to the industry now, regarding its findings and its expectations of firms.

In essence, the CBI found that the majority of insurance firms did use differential pricing, through various techniques. Further, it was not always clear that the Boards of Directors of the insurance companies adequately considered the issue of differential pricing and its impact on their customers. In addition, the CBI found that there was not sufficient evidence that insurance firms had a customer-focused culture in respect of pricing decisions and practices.

CBI’s immediate requirements of firms

The CBI’s ‘Dear CEO’ letter to the insurance companies states that they must immediately:

• Assess their pricing methodologies in light of the CBI’s definition of ‘differential pricing’. Where a firm does not consider that their pricing methodologies do not include ‘differential pricing’, as defined by the CBI, it must document the rationale for this and have it agreed by the Board.

• Where a firm does have ‘differential pricing’ in place, the Board of the firm must take ownership of this, ensuring appropriate governance and oversight is in place and it must be fully informed of the impact of these practices on its customers.

• Ensure that a fully-embedded consumer protection risk framework is in place to manage conduct risk and drive positive behaviours.

Insurance firms are required to ensure that all of the above is supported by documented evidence. Firms will also need to be able to demonstrate, to the satisfaction of the CBI, how any of their differential pricing practices comply with the requirements of the Consumer Protection Code 2012, as amended.


This CBI statement further emphasises the central importance that the CBI attaches to holding Boards of firms to account in ensuring that their firm acts in accordance with regulatory requirements and expectations.