ANALYSIS REPORT

Outcomes of Discussions on Margin Personalization

In brief - Our research into margin personalization (April 2025) revealed that in half of the insurers examined, at least one product involved higher premiums for loyal customers than for comparable new customers. We held discussions with insurers regarding this matter, in which they indicated that higher profit margins for loyal customers are undesirable. Explanations included welcome discounts for new customers that lasted too long, package discounts that only applied to new customers, or new propositions with lower profit margins that were only taken up by new customers.

NOVEMBER | 2025

Table of Contents

Introduction 3
Outcomes of Discussions with Insurers 4
2.1 Discounts for Newer Customers 4
2.2 Use of Different Propositions Within the Portfolio 4
2.3 Stability 4
2.4 Solidarity 5
2.5 Any Increase in Profit Margin is in Principle Margin Personalization 5
Conclusion 6

1. Introduction

Our research into margin personalization (April 2025) revealed that in half of the insurers examined, at least one product involved higher premiums for loyal customers than for comparable new customers. The AFM addressed the relevant insurers regarding this matter at the time and announced discussions concerning the product development standard (Article 32 of the Decision on Conduct Supervision of Financial Undertakings Wft). These discussions have now been completed.

During the discussions, insurers indicated that it is undesirable for loyal customers to pay higher premiums than comparable new customers and that it is good that the AFM is paying attention to this. Insurers have made adjustments to their premium calculation and/or policy where necessary. Furthermore, all insurers stated that they do not take customer tenure into account when determining the level of premiums. The insurers also indicated that they recognized the figures, although some insurers had made errors in providing the data for the research. With this publication, the AFM shares the outcomes of these discussions and its expectations regarding the explanations mentioned.

Several insurers indicated that they will use the AFM's research methodology to continuously monitor profit margins per customer group. The AFM views this positively and emphasizes that insurers, thanks to their access to source data, can monitor any differences in profit margins between individual policies. In its methodology, the AFM chose to request only averages per customer tenure group and to define loyal customers as the customer group of 9+ years. Insurers can monitor more granularly whether profit margins increase per customer tenure group (or other groups), better account for statistical significance, and take action on possible unexpected outliers that disappear in an average.

2. Outcomes of Discussions with Insurers

Insurers where margin personalization occurred provided various explanations for this in the discussions held. In this chapter, we share the explanations mentioned and our expectations regarding them.

2.1 Discounts for Newer Customers

In the case of some insurers, there were (sometimes unintentional) discounts for newer customers that loyal customers did not receive. In several cases, the AFM observed during the discussions that margin personalization arose due to the continuation of a welcome discount after the first year (customer group 0-1). Usually, this was an unintentional consequence of technical problems, as the welcome discount was, in principle, only intended for the customer group of 0-1 years.

Regardless of the precise cause, a welcome discount that continues after the customer group of 0-1 years can lead to margin personalization. In practice, this indeed leads to a greater chance of higher profit margins for loyal customers than for newer customers.

There was also sometimes specific discounts for individual customers from the newer customer groups, and the introduction of package discounts only for new customers. Sometimes new propositions were introduced with lower profit margins, which were only taken up by new customers.

2.2 Use of Different Propositions Within the Portfolio

In the case of some insurers, there were multiple propositions within one product group, which were combined in the AFM's data request. It occurred that the different propositions had different profit margins for the various customer groups. Insurers are free to run different propositions with different premium calculations within the same product category. However, when the number of customers in these propositions is unevenly distributed across customer groups, this can lead to margin personalization. This mainly occurs when both relatively new and closed book propositions are run within the same product group. The relatively new proposition has no more loyal customers, and the closed book proposition has no newer customers. If the closed book proposition has a higher margin than the relatively new proposition, margin personalization quickly arises.

2.3 Stability

Insurers stated that customers benefit from stable premiums. In practice, insurers implement stable premiums by setting a maximum on the percentage by which premiums can rise or fall per year, regardless of the underlying change in costs. This is also known as capping and flooring. This difference can be reduced over a number of years through capping and flooring.

The AFM understands that it may be in the customer's interest not to increase premiums too strongly from one year to the next. Insurers stated that a cap must therefore stand against this. In the research into margin personalization, an unequal distribution in the customer groups affected by capping and flooring could lead to margin personalization. This occurred mainly when portfolios had been purchased in the recent past and the underlying pricing changed, but premium changes lagged behind.

Regarding the use of capping and flooring, insurers must take into account that these are not neutral instruments. For example, premium calculations where a higher percentage of capping than flooring is applied are to the disadvantage of customers, as premiums can then rise proportionally harder than they fall.

Finally, it is important to determine which percentage is chosen for the cap and the floor. Lower percentages will make premiums more stable, but may cause it to take longer for customers to reach the premiums desired by the insurer. Higher percentages ensure that customers reach the premium desired by the insurer sooner, but also result in more possible volatility.

The AFM considers it important that insurers also include the use of capping and flooring in the aforementioned balanced interest assessment; it is, after all, an important part of premium determination. Furthermore, it is desirable that they continuously monitor their portfolio for the effects of capping and flooring on specific customer groups.

2.4 Solidarity

One insurer stated that it takes a degree of solidarity into account when determining the premium for the customer. For example, the premium for young drivers can be reduced to prevent them from only being able to take out car insurance at a relatively high premium due to an increased risk profile and a low position in the bonus-malus table. Since young people occur more frequently in the customer group of 1-2 years, this can be an explanation for margin personalization: the profit margin on this group is then reduced compared to the group of loyal customers.

The AFM is of the opinion that insurers who wish to stimulate solidarity for certain customer groups in their portfolio have freedom in this. However, the product development standard and the balanced interest assessment also apply here. Therefore, the AFM expects that the product development process has explicitly addressed the reason for this and that it is substantiated that the customer interest for the various customer groups has been weighed in a balanced manner.

2.5 Any Increase in Profit Margin is in Principle Margin Personalization

Any increase in profit margin after the customer group of 1-2 years means in principle margin personalization, as explained in the published report. In the research, the AFM proceeded from a 5% difference, and the discussions revealed that some insurers had questions about this. However, this percentage was a purely methodological choice, to maintain a margin of error.

3. Conclusion

As noted earlier in the research, the AFM expects that increases in profit margins after the customer group with a customer tenure of 1-2 years do not occur. If these increases do occur, insurers must explicitly address the reason for this in the product development process and must be able to substantiate that the customer interest has been weighed in a balanced manner. Any other forms of margin personalization than those based on customer tenure must not conflict with the fair and careful treatment of customers. The AFM will pay attention to this subject in the coming period and may conduct a spot check at a later determined moment.