New rules are expected to save consumers £4.2bn over 10 years.
New rules have been introduced to protect car insurance customers from so-called “loyalty penalties” when they renew their policies. The measures implemented by the Financial Conduct Authority (FCA) mean existing customers must be offered a renewal price that is no higher than they would pay as a new customer.
The FCA measures are designed to prevent a practice known as ‘price walking’, which sees loyal customers charged slightly more every year. This has meant consumers are being forced to shop around and switch their insurance provider every year to avoid paying higher prices.
According to the financial regulator, this practice also distorts the market, with many firms offering below-cost prices to attract new customers. The organisation also says insurers are using “sophisticated processes” to offer attractive deals to customers who they think will not switch in the future and will therefore pay more.
Under the new measures, the FCA will also introduce new measures that make it easier for “most consumers” to cancel their policies, and to make insurers “consider how they offer fair value to their customers”. The regulator will also require insurers to report data to the FCA, allowing it to “supervise” the market more effectively.
Although the FCA admits its changes will mean companies stop offering “unsustainably low-priced deals” to some customers, it expects the majority to save money. Over 10 years, the organisation estimates these measures will save consumers a combined total of £4.2 billion.
“These measures will put an end to the very high prices paid by many loyal customers,” said Sheldon Mills, the executive director for 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.
“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.”
Meanwhile Charlotte Clark, the director of regulation at the Association of British Insurers (ABI), said the insurance industry backed the changes.
“Insurers support these reforms and will continue working closely with the FCA to ensure they are delivered effectively,” she said. “While the FCA recognises their interventions could lead to price increases for consumers who regularly shop around, these remedies should ensure that all customers get fair outcomes from competitive insurance markets.
“It is vital that the new rules are applied across the whole insurance market, including price comparison websites and insurance brokers, with a uniform level of supervision and monitoring by the FCA, to ensure good customer outcomes. As the FCA has said previously, insurers do not make excessive profits and, as they now point out, it is likely that firms will no longer be able to offer unsustainably low-priced deals to some customers.”