The FCA said the changes will save existing insurance customers up to £4.2bn over the next 10 years
Britain’s financial watchdog has outlined a package of new measures to improve competition and protect loyal insurance customers from paying higher fees.
The Financial Conduct Authority (FCA) said the changes will save existing insurance customers up to £4.2bn over the next 10 years.
The changes which come into effect in January 2022 also include new rules, which ensure renewal quotes for home and motor insurance consumers are not more expensive than they would be for new customers.
These measures will put an end to the very high prices paid by many loyal customers, said Sheldon Mills, executive director, consumers and competition at the FCA. 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.
The FCA, which has been trying to tackle the loyalty penalty, said its new rules will stop firms “price walking.”
Price walking is when a customer is charged more, every year, by staying with the same insurance provider — even though their risk is no greater.
The FCA says the practice distorts the way the market works for everyone as many companies offer below-cost prices to attract new customers.
It added: They also use sophisticated processes to target the best deals at customers who they think will not switch in the future and will therefore pay more.
The penalty is a result of the growth, and encouragement, of shopping around for better deals for insurance, overdrafts and utilities. This means, loyalty customers often get charged more, whereas those who switch get the best deals, the same as new customers.
Gareth Shaw, head of money at Which?, said: For far too long, insurance companies have employed sharp pricing tactics to lure in customers before hitting them with eye-watering price hikes and exorbitant premiums, so it is right that measures will finally be introduced to help put an end to these unfair practices.
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.
It will also require insurance companies to do more to consider how they offer fair value to their customers.
Home and motor insurance providers will be required to report data to the FCA so that the watchdog can supervise the market more effectively.