From 1 January, insurance firms will be no longer be allowed to quote customers a higher price for renewing their home or motor insurance than they would pay if they were a new customer, the UK’s financial watchdog announced.
The Financial Conduct Authority (FCA) believes this will save consumers £4.2bn ($5.6bn) over the next 10 years.
"Our interventions will make the insurance market fairer and make it work better,” said Sheldon Mills, executive director, consumers and competition at the FCA, adding: “insurers can no longer penalise consumers who stay with them”
He said consumers can still shop around and negotiate a better deal, but won't have to switch just to avoid being charged a loyalty premium.
The new rules come after the FCA found many insurers were increasing prices for renewing customers year-on-year – a practice known as ‘price walking’.
This not only means higher prices for loyal customers, but according to the FCA distorts the way the insurance market works.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown (HL.L) said price walking is "where you’re offered a cheap deal to tempt you in, and then every year your renewal gets more and more expensive."
She said the new regulation is "good news for those who stick with one provider, but it’s likely to mean the end of very cheap deals for those who are prepared to keep switching"
The regulator said any firms that are unable to implement the technical changes required to comply with the new rules before 17 January will need to ensure that consumers do not lose.
The FCA’s new package also includes rules to give consumers easier methods of cancelling the automatic renewal of their policy, and to require insurance firms to demonstrate that their products deliver fair value to customers.
Home insurance premiums have slumped over the past year after being pressed down by the pandemic and an ongoing “pricing battle” on comparison websites, recent Consumer Intelligence research has shown.
Premiums fell to an average of £138, representing an 8.2% decline over the past 12 months as the pandemic meant people spent prolonged periods at home during the start of the year. This meant burglars were less likely to break in and homeowners were quick to deal with issues like water damage.
Meanwhile, EY’s UK Motor Insurance Results from earlier this year found premiums for car insurance were expected to be 6% lower this year than in 2020 because the pandemic had meant a change in car usage patterns and a fall in the number of claims made.
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