From 1 January insurers will be banned from quoting customers a higher price for renewing their home or motor insurance than they would pay if they were a new customer. The new rules brought in by the Financial Conduct Authority (FCA) are expected to save consumers £4.2bn over the next 10 years.
The FCA’s reforms follow a review that uncovered that many insurers were increasing prices for renewing customers year-on-year – a practice known as price walking.
As well as leading to higher prices for loyal customers, price walking distorted the way the whole insurance market worked. Many firms offered below-cost prices to attract new customers, who then paid more over time if they renewed their insurance. Insurers used sophisticated processes to target their best deals at customers who they thought were less likely to switch in future.
Sheldon Mills, Executive Director, Consumers and Competition at the FCA, commented:
‘Our interventions will make the insurance market fairer and make it work better. Insurers can no longer penalise consumers who stay with them. You can still shop around and negotiate a better deal, but you won’t have to switch just to avoid being charged a loyalty premium.
‘We are keeping a close eye on how insurers respond to our new rules, to ensure that the benefits of a better insurance market are delivered to consumers.’
The FCA’s package of reforms coming into effect in January also includes new 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.