New rules have come into force to make the car insurance market “fairer” and “better” for customers, the Financial Conduct Authority (FCA) has confirmed. New pricing rules for insurers came into force on January 1, stopping companies quoting existing customers a higher price for insurance renewals than an equivalent new customer would pay.
The FCA’s reforms were announced last year following a review that found many insurers were increasing prices for renewing customers year-on-year – a practice known as price walking. As well as causing loyal customers to pay more, the FCA said the system “distorted the way the whole insurance market worked”.
Essentially, the FCA said it was concerned that firms were offering below-cost prices to attract new customers, then leading them to pay more over time as they renew their insurance. The FCA also claims insurers were using a “sophisticated process” to target their best deals at customers who they thought were less likely to switch in future.
Under the new rules, however, price walking will be banned, and companies will not be allowed to charge existing customers more than they would if the customer was new to the business. The updated rules also give consumers easier methods of cancelling the automatic renewal of their policy, and there are rules that require insurance firms to demonstrate that their products deliver fair value to customers.
In all, the FCA says the measures will save consumers an estimated £4.2 billion over the next 10 years. However that figure does take into account the fact these rules apply to home insurance policies, as well as car insurance.
“Our interventions will make the insurance market fairer and make it work better,” said the FCA’s executive director for consumers and competition, Sheldon Mills. “Insurers can no longer penalise consumers who stay with them. You can still shop around and negotiate a better deal, but you won't have to switch just to avoid being charged a loyalty premium.
“We are keeping a close eye on how insurers respond to our new rules, to ensure that the benefits of a better insurance market are delivered to consumers.”
The Association of British Insurers (ABI) has already published guidance for consumers regarding the new rules, and the organisation has said it “welcomes” the changes, which “re-balance” premiums between new and existing customers.
“We support these reforms, and are pleased that the FCA has acted to bring them in across the home and motor insurance markets,” said James Dalton, the ABI’s director of general insurance policy. “While the FCA recognises that these changes could lead to price rises for some who shop around regularly, all customers should get fairer outcomes in the UK’s competitive home and motor insurance markets. These are very significant changes and insurers will work with the FCA to ensure as smooth a transition as possible for their customers.”