The FCA has implemented a package designed to improve competition and protect home and motor insurance customers from loyalty penalties.
The package will ensure renewal quotes for home and motor insurance consumers are not more expensive than they would be for new customers.
This move follows an FCA market study in September that millions of home and motor insurance customers lose out if they renew repeatedly with their current providers.
In 2018, 6 million loyal policy holders would have saved £1.2 billion had they paid the average price for their actual risk.
Many firms are said to increase prices for existing customers each year at renewal, a practice known as price walking.
This means that consumers have to shop around and switch every year to avoid paying higher prices for being loyal.
The FCA’s new rules will stop price walking, with insurers required to offer renewing customers a price that is no higher than they would pay as a new customer.
In addition to the new rules on pricing for home and motor insurance, the FCA is also bringing in new rules to give most consumers easier methods of cancelling the automatic renewal of their policy;
require insurance firms to do more to consider how they offer fair value to their customers; and
require home and motor insurance firms to report data to the FCA so that it can supervise the market more effectively
Sheldon Mills, Executive Director, Consumers and Competition at the FCA stated, “These measures will put an end to the very high prices paid by many loyal customers. Consumers can still benefit from shopping around or negotiating with their current provider – but won’t be charged more at renewal just for being an existing customer.”
“We are making the insurance market work better for millions of people. We will be watching closely to see how the market develops in the future and to ensure firms continue to deliver fairer value to consumers.”
The pricing, auto-renewal and data reporting remedies come into effect on 1 January 2022. The rules on systems and controls, product governance and premium finance take effect from the end of September 2021.
Commenting on the FCA announcement, EY said the move reinforces its commitment to improving consumer trust in the home and motor insurance industry, ushering in a new era of transparency.
“The most radical change, as signalled in September 2020, will be the end of ‘price walking’ which will no longer be admissible from 1st January 2022, meaning all firms have to offer existing customers the same price for renewal as they would offer a new customer,” said Rodney Bonnard, UK Head of Insurance at EY.
“While this has been sign-posted for some months now, it is a huge undertaking, and firms are having to work at pace to their current business and pricing models.
“In practice, we expect this to be beneficial for longer term customers but customers who switch providers regularly may pay more once the reform is implemented.”
