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Categorized | Insurance

RBS to scrap ‘teasers’ on home insurance

Posted on August 28, 2015

Les Matheson, head of retail banking at RBS.©FT

Les Matheson, head of retail banking at RBS

Royal Bank of Scotland is scrapping “teaser” rates on home insurance in another move to stamp out unfair charges, as part of a plan to simplify the lender and retain customers.

The state-backed bank is to implement a strategy of offering its best price on home insurance to customers, fixed for three years.

    The changes mark a departure from the industry practice of providing an attractive price in the first year, then introducing a sharp rise on renewal.

    The move by RBS follows seven successive net annual losses and the threat from “challenger” banks that have emerged since the financial crisis, such as TSB and Virgin Money.

    Les Matheson, head of the retail bank, is calling on the regulator to take action. He told the Financial Times: “I think regulators should be doing more to make it easier for customers to do the right thing for them.

    “There are so many promotional prices that it can be confusing for customers and hard for them to understand.”

    RBS said 70 per cent of insurance customers did not shop around for a policy, leaving them exposed to a jump in policy costs when renewing after the first year.

    The bank’s new policy on insurance comes into force across both RBS and NatWest from September 9 and could prompt insurance companies to take similar action, Mr Matheson said.

    Scrapping introductory insurance fees that lure customers to change banks comes after Ross McEwan, chief executive of RBS, banned so-called teaser rates on savings products and zero per cent balance transfers on credit cards last year.

    Mr McEwan said at the time that while such teasers might encourage people to switch banks, they “send a terrible message to loyal customers” and that the move to ban such unfair charges was aimed at rebuilding trust.

    Many other banks are becoming more aggressive in offering teaser rates in an attempt to win customers. Figures from Moneyfacts show there were 96 credit card balance transfer deals in August 2009, which has now increased to 133.

    Mr Matheson said zero per cent balance transfers were often a “misnomer” because of the fees that were frequently bolted on.

    There are so many promotional prices that it can be confusing for customers and hard for them to understand

    – Les Matheson, head of the retail bank

    But mortgages are now coming under scrutiny, he added, because it is hard for borrowers to compare the best deals when rates and fees are presented separately.

    Mr Matheson said the bank was working with the Council of Mortgage Lenders to launch an industry standard. “We need to try and find a way for customers to make a comparison. Often best-buy mortgage rates are shown, but not the fees.”

    RBS’s share of the total mortgage market sits at 8.3 per cent, rising towards its 12 per cent target.

    Mr Matheson is also taking aim at the payday lending sector, to provide options for customers who might otherwise turn to short-term, high-cost loans, as the sector comes under pressure from stringent regulations.

    The bank has offered 650,000 customers an overdraft charging a standard annual percentage rate of 18-20 per cent, as an alternative to taking out a fast loan.


    Portion of customers who do not shop around for an insurance policy

    It comes as the number of payday lenders is expected to diminish from 400 to only a handful, after the financial watchdog set a cap on the amount of interest that can be charged at the start of this year.

    Digital innovation is another area of focus for the bank, with mobile phone “exploding” in popularity as a banking channel, Mr Matheson said.

    However, the bank came under scrutiny after its IT systems failed in June, which led to delays to 600,000 customer payments and direct debits. On Friday, rival bank HSBC suffered a technical problem that hit 275,000 customer payments ahead of the bank holiday weekend.

    “There are thousands of different underlying systems and processes, and we are upgrading them,” Mr Matheson said. Following a similar meltdown in 2012, RBS has separated its systems and created a back-up for the most critical functions.

    “For any industry underpinned by technology, we are constantly upgrading and improving the systems we have,” he added.