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From next January, car and home insurance renewal quotes are expected to be made cheaper for customers. Renewing their insurance may cost existing customers the same as it currently costs for new customers.
The Financial Conduct Authority (FCA) has confirmed a ban on car and home insurance renewal quotes being any more expensive than they would be for new customers.
This “loyalty penalty” ban will come into place on January 1 next year.
This is good news for customers as it could save them up to a whopping £4.2billion over 10 years.
However, the FCA said that it could also reduce the number of cut-price switching deals.
The watchdog found that customers who stuck to their insurance policies after a year were paying £1.2billion too much.
This is a practice put in place by insurance companies called “price walking”.
It means that firms increase prices for existing customers each year at the time of renewal.
The FCA found that this leads people to shop around and switch insurance providers every year to avoid the boost in price.
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Not being loyal to an insurance provider distorts the market, the FCA said.
It added that companies were offering deals to new customers at below-cost prices, attracting people using “sophisticated processes to target the best deals at customers who they think will not switch in the future and will therefore pay more”.
However, the FCA’s new rules would end this practice.
The watchdog said: “Insurers will be required to offer renewing customers a price that is no higher than they would pay as a new customer.
“It is likely that firms will no longer offer unsustainably low-priced deals to some customers.
“However, the FCA estimates that these measures will save consumers £4.2bn over 10 years, by removing the loyalty penalty and making the market work better.”
The new rules will also make it easier for consumers to cancel automatic renewals of their policies and force insurance firms to do more to consider how they offer fair value to customers.
Sheldon Mills, executive director for consumers and competition at the FCA, said: “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.
“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.”
Mr Mills added: “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.”
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