Insurers are exploiting sensitive data to hike bills, a Money Mail investigation reveals today.
Firms now spy on shopping habits, credit records, social media posts and even phone usage before setting premiums.
They also assess how likely an individual is to switch to a rival.
Those judged unlikely to shop around – typically the elderly or ‘cash rich and time poor’ – are hit with higher renewal rates
Those judged unlikely to shop around – typically the elderly or ‘cash rich and time poor’ – are hit with higher renewal rates.
The Financial Conduct Authority is understood to be so alarmed by the tactics that it is investigating the issue.
The watchdog also fears that new data protection rules which came into force yesterday may not help – because customers will still mistakenly allow their personal details to be abused.
Marc Gander of the Consumer Action Group said customers were being punished for loyalty.
‘This is a shocking way to treat people,’ he said.
‘It is seeing customers as a statistic to exploit and it is an abuse of their loyalty.
‘The insurers might claim that this is for the benefit of policyholders but that is nonsense. The insurers are the real winners in all this.’
Research suggests that customers who do not switch insurer are overcharged by a total of around £800million a year.
Traditionally, firms set premiums using the personal details supplied by a customer, such as their age and postcode.
However, companies now have access to a wealth of extra information – so-called Big Data.
This can include loyalty cards, government records and even logs from call centres.
The detailed picture allows the firms to predict a customer’s behaviour – and their likelihood of shopping around.
A recent blog from the accountancy firm PricewaterhouseCoopers, which advises big insurers, lays bare the tactics.
It says firms can use data from loyalty cards to determine how wealthy a target is – and whether they would swallow a big price hike.
Information from price comparison websites can give a clue to how financially savvy a person is, with those more likely to switch credit or savings accounts deemed more likely to change insurance companies.
Research suggests that customers who do not switch insurer are overcharged by a total of around £800million a year
The time of day that a customer visits a store, or calls a telephone helpline, serves to indicate how busy their life is.
It is legal for insurance firms to use such data, provided customers have ticked the relevant consent forms with the companies or comparison websites they supply their details to.
The new GDPR rules introduced yesterday state that customers must give ‘informed consent’ to having their data shared between companies.
However, terms and conditions are often so confusing and lengthy that customers do not realise how their data is going to be exploited.
Its use may even be made a condition of using a service.
The FCA believes customers who are most likely to stay loyal are secretly being charged more than those who insurers fear will leave if they are not offered a good deal.
Andrew Bailey, its chief executive, warned about the tactics earlier this month.
He told a conference of industry chiefs that more access to data ‘could lead to unfair outcomes, particularly if the person is vulnerable or there is a risk of someone being financially excluded’.
He added: ‘If competition is working well in a market, it should not overly disadvantage existing customers over new ones.’
Mr Bailey warned insurers that customers may rush through terms and conditions without appreciating the implications.
And he called into question the value of ‘informed consent in a world of large-scale data processing’.
Tom Fisher, a spokesman for the campaign group Privacy International, said: ‘There is a lack of transparency here.
‘Should we not know when, how and what data is being used to make consequential decisions about our lives?
‘Much of this data can reveal deeply personal areas of our lives, including our gender and race, and exploitation to make judgements about who we are is unacceptable.’
James Daley, of the consumer group Fairer Finance, said: ‘People who aren’t proactive shouldn’t be penalised with pricing.
‘If anything insurers should be trying to make contact with those who keep accepting higher premiums year after year.’
Insurance companies have been under scrutiny over the rates they charge existing customers when their policy ends.
They have been accused of offering cheap deals to new customers, but higher premiums to existing ones.
They were also accused of hiding increases from customers by not telling them how much a policy had gone up by.
A Daily Mail campaign forced the industry to put the previous year’s premium on renewal letters.
A spokesman for the Association of British Insurers said last night: ‘Insurers continually review the factors they use to assess risk, so that they can set premiums as accurately as possible.
‘Each insurer will decide on the information that they consider relevant. Insurance is a very competitive market and we encourage customers to shop around for the best deal for their needs as many do.’
Loyal customers hit by huge bill hikes
John Shaw was furious after his car premium with Churchill soared from £382 to £508 in a year.
The 83-year-old had stuck with the insurer for four years – and had not changed his car in that time or made a claim.
When he contacted Churchill the firm offered to reduce his premiums to £480. He went to a rival insurer and found cover for £308.
John Shaw was furious after his car premium with Churchill soared from £382 to £508 in a year
Mr Shaw, who lives in a village outside Southampton, said: ‘I have no idea why Churchill decided to charge me more.
‘It seems as though I was penalised for being loyal.’
A Churchill spokesman said: ‘Our statistics show that as drivers enter their 70s and 80s their claims costs and frequency increases and our prices have to reflect this in expected claims costs.
‘While this trend is seen across the industry, each insurer’s view of risk can vary from policy to policy, which means each insurer may offer very different prices.’
Jillian Thomas was horrified to discover that her 91-year-old mother Anne was being charged £775 a year for her home cover policy with Direct Line.
The pensioner, who is partially sighted and hard of hearing and does not have access to the internet, had been a customer of the insurer for many years.
After she received the eye-watering renewal notice last year, her daughter shopped around and found she could obtain cover for her mother’s four-bedroom home in Sheffield for £160 a year with another insurer.
Jillian Thomas was horrified to discover that her 91-year-old mother Anne was being charged £775 a year for her home cover policy with Direct Line
Mrs Thomas, 56, a financial adviser, says: ‘It feels as though insurers are discriminating against the elderly, as many of my mum’s age have no way of comparing prices.
‘This is an absolute scandal and needs to be stopped.’
A Direct Line spokesman said: ‘We have renewed Mrs Thomas’ policy and can confirm her premium has increased on average 6 per cent a year since 2013 when she no longer received a new business discount.
‘This increase can be attributed to claims inflation within the industry and the increase in the insurance premium tax from 6 per cent in 2011 to 12 per cent in 2017.’
Mike Pickering, 67, saw the cost of his motor policy with over-50s insurer Saga jump from £557 to £722 at renewal this week.
He has not made a claim or changed his vehicle in that period – and drives only 6,000 miles a year in his five-year-old Vauxhall Astra.
The retiree, who lives near Birmingham, said: ‘Saga is supposed to be for older people but they have hiked the cost of my policy by a substantial amount.
Mike Pickering, 67, saw the cost of his motor policy with over-50s insurer Saga jump from £557 to £722 at renewal this week
‘It might be that they thought from their data I could afford to pay a bit more so tried to bump up my premiums.’
A Saga spokesman said: ‘Insurance is a competitive sector, pricing is dynamic and depends on many factors.
‘The underwriters on our panel regularly review the way they rate risk.
‘This means that some customers see a price increase at renewal, while others see a reduction.’
The firm said it does not adjust premiums upwards according to a customer’s ability to pay.