Motor insurance customers won’t be penalised for renewing their policy if proposals published today (Sep 22) by the Financial Conduct Authority are brought in.
The City regulator says loyal customers shouldn’t have to pay more than new ones when renewing their motor or home policies.
Firms would be allowed to set new-business prices, but they’d be prevented from gradually raising the renewal price – known as ‘price walking’ – other than to reflect changes in risk.
It also wants customers automatically switched to better deals, and the proposals would apply to the same channel, eg, online.
Ten million motor and home policies are held by people who have been with their provider for five years or more.
Based on typical risk, FCA analysis found that new customers pay £285 for motor insurance while customers who have been with their insurer for more than five years pay £370.
The watchdog previously said that six million policyholders were paying high or very high margins in 2018.
It said today (Sep 22) that its proposals will save consumers an estimated £3.7bn over 10 years, and it will monitor their impact.
Interim chief executive Christopher Woolard said: ‘We are consulting on a radical package that would ensure firms cannot charge renewing customers more than new customers in future, and put an end to the very high prices paid by some long-standing customers.
‘The package would also ensure that firms focus on providing fair value to all their customers. We welcome feedback on the proposals.’
Views on its proposals need to be submitted by January 25, 2021, and the new rules would be introduced in 2022.
The FCA’s package of proposed remedies aim to ramp up competition between providers, as it published the final report of its market study into motor and home insurance pricing.
The regulator said it was concerned that both markets weren’t working well for consumers.
Insurers use complex and opaque pricing practices that let them raise prices for consumers who renew with them each year, added the FCA.
Dame Gillian Guy, chief executive of Citizens Advice, said: ‘It’s nearly two years since we submitted a super-complaint on the loyalty penalty and we’re pleased to see the FCA is proposing strong action to crack down on this systematic scam.
‘We’re especially happy to see it tackling price walking and making companies automatically switch their customers to better deals.
‘It’s important to remember these are proposals and have an introduction date of 2022, which is a long way away. It is essential that the FCA confirm and implement these quickly to bring insurance customers’ prices down by £370 million a year.’
Huw Evans, director general of the Association of British Insurers, said: ‘The ABI agrees with the FCA that the household and motor insurance markets do not work as well as they should for all customers, and we continue to support the FCA’s work to address this.
‘Insurers and brokers have already begun to tackle the issue of excessive price differences between new and existing customers through an industry initiative that has seen over 8.5 million pricing interventions across home and motor insurance worth £641m.
‘It is vital that price comparison websites and insurance brokers are subject to the same level of supervision and monitoring by the FCA to ensure a balanced approach.
‘We will consider carefully this package of proposals, so that we can engage with the FCA on the most effective measures possible.
‘There are winners and losers in the way the market works currently, with those who switch insurance provider every year often ending up with lower prices. The FCA has confirmed that insurers have not made excessive profits.’