Date: 17th October 2022
Author: BETTER FINANCE
|Explanations||A differential pricing mechanism in insurance contracts describes a practice by which an insurance company adapts the cost or price of the product/service on considerations other than the expected risk premia or estimated expenses.
Put simply, prices will reflect how proactive or passive a client is (shop around or not) rather than the risk related to the insured event.
|Detrimental effects for consumers||Differential pricing mechanisms can have detrimental effects for consumers, from mis-selling to losing trust and distorting competition on the market.|
|Use of big data and AI||Differential pricing mechanisms are based on personal data processing – EIOPA should closely supervise the principles of purpose limitation, data minimisation, and legitimacy of processing of data in insurance companies.|
|Adequate product governance mechanisms||All rules laid down in the IDD delegated regulation on product oversight and governance (Arts. 4-9) should be adequately observed by product manufacturers and distributors of insurance products.|