Consumers’ access to financial services Contents

3Do vulnerable consumers pay more?

The relationship between vulnerability and financial distress

50.The Committee received a number of written submissions concerning the link between vulnerability and increased financial difficulty. In particular, Scope, a disability equality charity, noted the increased costs those with disabilities can incur:

Many disabled people face additional costs related to their impairment or condition across many areas of their lives. On average, these costs amount to £570 a month. This is on top of welfare payments designed to help meet these costs. One in five disabled people face extra costs of over £1,000 each month […]

The extra costs of disability fall broadly into three main categories:

51.The Money and Mental Health Policy Institute concluded that:

People with mental health problems are three times as likely to be in problem debt as those without.40

They went on to explain that:

Half of adults in problem debt also have a mental health problem. Mental health and financial problems can form a devastating, self-reinforcing cycle. Over 420,000 people in problem debt consider taking their own life in England each year, and more than 100,000 people in debt actually attempt suicide.41

Access to insurance

52.The Equalities and Human Rights Commission guidance on health insurance states that Schedule 3, Part 5, paragraph 21 of the Equality Act 2010 contains an exception for insurance companies that enables them to treat disabled people differently if “the different treatment is by reference to relevant information from a source on which it is reasonable for you to rely, and it is reasonable for you to treat the person differently.”42

53.Macmillan Cancer Support cited the existence of the exemption as being problematic for vulnerable customers. In its written evidence to the Committee, Macmillan stated that insurers are failing to disclose the basis on which they decide on additional medical premiums, and this makes it difficult to assess whether insurers were in compliance with the Equality Act:

Macmillan believes that the insurers’ ‘disability exception’—within the Equality Act 2010 is the root of many of these issues. Information on underwriting and the data used to inform medical screening tools, which underpin risk decisions and premium calculations, is treated as commercially ‘sensitive’. It is impossible to determine whether data used is ‘relevant and reliable’ (in compliance with the Act) or based on untested assumptions and generalisations and, consequently, if consumers are being quoted disproportionate or ‘precautionary’ premiums because insurers do not take proper account of their circumstances.

Insurers have stated that they comply with the Equality Act by offering all customers the opportunity to undergo the same medical screening used for all conditions. Macmillan believes that this approach is inadequate. Rather than expecting a universal parity of approach, the Act requires providers to make reasonable adjustments to the provision of goods and services for disabled consumers, based on the needs generated by the individual’s disability, to ensure that they have a level of access closest to that available to non-disabled consumers.43

54.The Committee received evidence that premiums to cover medical conditions are significantly higher than might be considered necessary. An example comes from the National Aids Trust (NAT) in the case of consumers with an HIV diagnosis:

NAT found that people living with HIV are often unclear why they are being charged so much, leading them to feel that they are being discriminated against. The significant variance in price between providers reinforces this, particularly between mainstream insurers versus specialist providers.44

NAT provided the Committee with a contribution from a participant at one of its group events:

I’m with [a specialist provider] because I’ve got [a current account that offers travel insurance] I phoned up, gave them all my information, and they wanted over eight hundred pounds extra as a supplement for the fact that mainly the two of us are HIV positive. Without the HIV it would have been two hundred pounds for anxiety, asthma. You’re like well that’s still ridiculous when I’ve got cover for less than a tenth of that. That is blatantly them trying to not cover you.45

Similarly, Macmillan Cancer Support also provided information on the additional premiums which people with a current or former cancer diagnosis are required to pay:

People with cancer pay substantially more for travel insurance than other consumers. Our research has shown that, on average, people who have had cancer paid over three times the average premium paid by someone without a pre-existing condition.46

55.The additional premiums paid by those with medical conditions to obtain travel insurance has received attention from the FCA, who issued a call for evidence on access to insurance in June 2017.47 Christopher Woolard, Executive Director of Strategy and Competition, FCA, explained the reasons for the FCA’s call for evidence in relation to how insurance firms were complying with the Equality Act:

We asked providers to explain how their pricing systems and practices complied with their obligations under the Equality Act 2010. The Equality Act makes it unlawful for firms to discriminate against people who have (or had) a disability (including cancer). There were differing responses from providers on how they were complying with the Equality Act. Most explained that they generally avoided discrimination by using the same process for all medical conditions. They based decisions on the risk that a condition presents, rather than the condition itself. They also provide equal opportunities to undergo a medical screening.48

However he went on to admit that the FCA did not review the pricing models of insurers:

We did not ask providers to send us the supporting evidence for their explanations. Most providers were aware of their obligations under the Equality Act, the disability exception for insurance and what the relevant tests are. We feel firms could examine whether their approach is reasonable in the circumstances. They could consider the possibility of indirect discrimination in their processes and make reasonable adjustments to avoid this. If we believe that firms are not applying the above tests correctly we will work with the Equalities Commission, and conduct further investigations. We believe that firms would not be meeting our obligations, including the Principles for Business, in not complying with the Equality Act.49

56.When the Committee asked Christopher Woolard what the FCA had done to make sure that insurance companies were complying with the Equality Act he stated:

We asked firms, in terms of putting together the algorithms that sit underneath their pricing, how they compiled that data and whether they have tested that each piece of data is compliant with the requirements that are set under the Equality Act, and a number of them could not give us that answer straightaway.50

57.The EHRC told the Committee that these were not issues that it had looked at in detail, and they were unlikely to do so in the future. Rebecca Hilsenrath told the Committee:

My initial caveat is that this is also not an area that we have looked into or have ever run any investigatory work on. […] These are very technical cases. […] It is full of algorithmic, actuarial assessments of data that we do not have sight of. There are all sorts of underlying assumptions that we are not aware of. It is unbelievably resource-intensive, difficult, technical and expensive to assess, so it becomes an issue about proportionate investment of resources on our part, but it is something we would look at. […] It is not in our strategic priorities, to be honest.51

58.In response to this, Christopher Woolard stated that the FCA has “the resources and expertise to pick inside those insurance models.”52

59.This report considers who should be responsible for the enforcement of the Equality Act in Chapter Five of this report.

60.Nisha Arora, Director of Consumer and Retail Policy at the FCA, told the Committee she was not aware of the specific issues the Committee raised, such as customers with HIV being charged more despite not being at greater risk of making a travel claims,53 but were complaints to be made, the FCA would prioritise them.54 The solution that she proposed for such cases that could be delivered more quickly was for consumers to seek out specialist firms which can provide more tailored policies and “understand the risks more, and can deal more sensitively with customers.”55

61.The FCA’s feedback statement also recommended the use of signposting to help consumers with medical conditions access travel insurance. Some charities were left unconvinced by this measure, including Age UK in written evidence to the Committee:

We are disappointed by the focus on signposting in the FCA’s recent response to its Call for Input on Access to insurance in relation to cancer. Signposting may be helpful to some, but simply perpetuates the current marketplace. We already have a similar signposting service for older consumers through BIBA, set up in the wake of the Equality Act. Age UK would like to see a review of how the signposting service is working for older consumers–not just in terms of the numbers of referrals, but the outcomes, i.e. whether people are able to get the cover they need, at a reasonable price. However, the wider question is whether the market as a whole is working for older people. Age UK’s strong preference is for a mainstream market that keeps up with the needs of our ageing population and maintains the largest possible risk pool.56

62.The EHRC told the Committee it does not have the relevant resources to investigate whether individual insurance firms’ treatment of customers with disabilities is compliant with the Equality Act or not. Responsibility for insurance companies’ compliance with the Act, both in individual cases, and for firm wide issues, should therefore be transferred to the FCA.

63.The FCA told the Committee that it has the resources to look at individual firms’ algorithms to asses compliance with the Act, but—for reasons unknown to the Committee—chose not to ask for individual firms’ data when it held an initial call for input regarding the issue. This was a missed opportunity. The Committee is concerned that, despite the FCA telling the Committee that a number of firms could not give it assurance straight away that their pricing data is compliant with the Equality Act, the FCA did not choose to ask for more information.

64.The Committee has heard that the FCA recommends consumers facing discriminatory pricing use more specialist companies that understand their individual circumstances better. This is not an adequate response to discrimination in breach of the Equality Act. While it may be the case that customers can seek a quicker solution by using a specialist insurer, illegal discrimination must be addressed by regulators.

65.Insurance markets operate by pooling and spreading risk among a large group of policy holders or policy writers. By excluding individuals with specific needs from mainstream insurers, it is less likely that they will be able to benefit from the pooling of risk that travel insurance provides. Pursuing a policy of encouraging vulnerable customers to use specialist insurers is therefore not the optimum solution, and reduces choice for vulnerable customers.

The loyalty penalty

66.Citizens Advice define the loyalty penalty as “the cost of being a long-standing customer, compared to a new customer receiving the same product or service”.57

67.Citizens Advice lodged a super-complaint58 on the premise that “deep, structural price discrimination against disengaged and loyal consumers has been a persistent feature of essential markets for many years”.59 The super-complaint is not limited to financial services products but extends across other services including energy and internet provision. Matthew Upton, Citizens Advice, described to the Committee the implications of already vulnerable consumers having to pay the ‘loyalty penalty’:

When I am shopping around for insurance, energy or mobile phones, I get brilliant deals subsidised by the most vulnerable in society, because they are much more likely to be hit by what we call the loyalty penalty, which is the price you pay once your initial contract jumps up.

He went on to explain that the average consumer could be paying up to £1,000 per year due to the loyalty penalty:

If you look at the lowest 10 per cent of the income decile, that can be about 8 per cent of their expenditure. It is huge amounts of money that people are being ripped off, very knowingly, by firms. That should be looked at as a priority.60

68.The Competition and Markets Authority (CMA) published its response to the super-complaint on 19 December 2018, in which it concluded that “vulnerable people, including the elderly and those on a low income, may be more at risk of paying the loyalty penalty.”61

69.The CMA recommended that “Firms should be publicly held to account for charging existing customers much more; regulators should publish the size of the loyalty penalty in key markets and for each supplier on a yearly basis and that targeted price caps to protect the people worst hit by the loyalty penalty, such as the vulnerable, where needed.”62

70.The CMA also made a series of specific recommendations for the FCA to respond to regarding the loyalty penalty within financial services. On cash savings the CMA recommended:

The FCA has recognised that interventions to date have had limited impact on addressing the harm to longstanding customers, and it is currently considering a ‘Basic Savings Rate’ among other potential interventions. We welcome this further work and recommend that if the FCA implement the Basic Savings Rate, it evaluates whether this has had the intended impact and if not, consider further pricing interventions such as a targeted absolute price floor in cash savings. The FCA should also consider whether collective switching can be applied.63

71.On insurance the CMA recommended:

Evidence suggests that many longstanding customers are paying much more than newer customers, with businesses repeatedly increasing prices year on year. Therefore, we welcome the FCA’s current market study and as part of this study we recommend that it: investigate insurance pricing practices and consider pricing interventions that limit price walking, for example rules to restrict this practice and explore how intermediaries can continue to benefit the home insurance market (for example where ‘semi-smart’ solutions can improve the existing infrastructure of price comparison websites).64

72.Christopher Woolard explained to the Committee in oral evidence that the FCA broadly agreed with the CMA’s recommendations:

We have finished or are just about to finish pieces of work around the mortgage market. We have pieces of work around cash savings that are finally coming into land, and we have a very large investigation ongoing right now around the general insurance market, which were the three areas that Citizens Advice particularly highlighted in what they do. The exact remedies we end up with at the end of that market study, in particular around general insurance, are still to be determined, but we are supportive of the broad thrust of where the CMA has gone, in terms of whether to make that kind of information available and what the CMA concluded.65

The FCA confirmed its major study into insurance would be published in the Summer.66

73.However, Christopher Woolard was not of the opinion that publishing a list of firms with the largest loyalty penalty was the most suitable response. He said:

Actually, particularly where switching is complex or a hassle for individuals, simply putting information in their hands that says they are not getting a great rate may not be the whole answer.

He went on to recommend that:

Some wider structural remedies may be part of the issue. That is why, for example in cash savings, we proposed the idea that there should be a base savings rate, so that, once you have been sold the product, you cannot go below that.67

74.The Committee welcomes the CMA’s conclusions and recommendations regarding loyalty penalties and how they impact upon vulnerable customers. The Committee notes that the FCA is in the process of investigating the existence of loyalty penalties within the mortgage, insurance and cash savings markets, and expects the FCA to act upon those investigations swiftly once concluded.

75.Based on the evidence given to the Committee, the FCA thinks that, due to the complexity of switching, simply providing customers with information about the loyalty penalty they are paying will be insufficient to motivate them to switch to a better provider. If this is the FCA’s view it must redouble its efforts to make switching a simpler process.

76.In line with the CMA’s recommendation, the Committee recommends that the FCA makes it mandatory for firms to publish the size of their loyalty penalties on an annual basis to consumers so that consumers are fully informed. Even if many consumers choose to ignore such information, others will not, and the inclusion of such information may motivate firms to make efforts to reduce their loyalty penalty.


39 Scope (CAF0038) Para 4

40 Money and Mental Health Policy Institute (CAF0047)

41 Money and Mental Health Policy Institute (CAF0047)

42 Equality and Human Rights Commission, ‘Equality law - Banks and other financial services providers’ website accessed on 8 April 2019

43 Macmillan Cancer Support (CAF0037) Para 40

44 NAT (National AIDS Trust) (CAF0051) para 6.2

45 NAT (National AIDS Trust) (CAF0051) para 6.2

46 Macmillan Cancer Support (CAF0037)

47 Financial Conduct Authority, ‘FCA asks for feedback on consumer access to insurance’, website accessed on 8 April 2019

57 Citizens Advice, ‘The Cost of Loyalty’, February 2018

58 A super-complaint, as defined by section 11(1) of the Enterprise Act 2002 (EA02), is a complaint submitted by a designated consumer body that ‘any feature, or combination of features, of a market in the UK for goods or services is or appears to be significantly harming the interests of consumers’.

60 Q1

61 Competition and Markets Authority CMA, CMA tackles loyalty penalty charges, 19 December 2018

62 Competition and Markets Authority, CMA tackles loyalty penalty charges, 19 December 2018

63 Competition and Markets Authority, ‘Tackling the loyalty penalty’, 19 December

64 Competition and Markets Authority, ‘Tackling the loyalty penalty’, 19 December




Published: 13 May 2019