Europe takes its own swing at insurance price-walking, seeks crack-down

Europe will push insurance regulators across the 27-nation bloc to crack down on differential pricing and price-walking practices across the full swathe of non-life insurance policies, a new regulatory order shows.

“Differential pricing practices must not result in unfair treatment,” the European insurance regulatory office EIOPA said in a supervisory statement to the national regulatory leaders across the European Union that must lead the charge.

EIOPA has watched as “the increasing sophistication of analytical tools” plus the advent of AI and big data have enabled firms to “increasingly tailor premiums to personal behaviours and characteristics, even if not related to underwriting risks.”

After seeing some EU states like Germany, Ireland, Italy, the Netherlands and Sweden, take independent action, then seeing peer regulatory bodies take steps in the US and the UK, EIOPA insists national regulators in the EU all step up to a common standard, already implicit in EU law.

As EIOPA sees it, insurers should need to demonstrate proper practices “throughout the entire lifecycle of the product to ensure that those practices do not unfairly affect customers.”

Select practices, and particularly price-walking whereby premiums get hiked inordinately at renewal based on non-actuarial factors, bear a “high risk” of unfair outcomes, therefore constituting a direct violation of the EU's Insurance Distribution Directive (IDD), EIOPA warned.

Price-walking is a broad concept in EIOPA’s eye, including renewal increases based on propensity to shop around, measures of client price elasticity or inordinate upsells from thinner, teaser offers.

Vulnerable groups including seniors, low income earners and less educated consumers “are at high risk of being disproportionately negatively affected.”

Internal corporate procedures will have to be set for tight product development approval and for lifetime product oversight. Design must be risk-based with a solid granular view to the characteristics and needs of the target market. Product testing and monitoring must follow suit. Documentation must be detailed.

EIOPA’s demands cover the full swathe of differential pricing practices, be it AI or not, but with warning that the more complex the AI/Big Data, the more rigorous the and sophisticated the oversight ought to be.

They also cover the full swathe of client types, albeit with understanding that retail and small and medium-sized business require greater protection.

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