The Financial Conduct Authority has implemented a package of
remedies to improve competition and protect home and motor
insurance customers from loyalty penalties. This includes new
rules so that renewal quotes for home and motor insurance
consumers are not more expensive than they would be for new
customers.
These measures address the issues identified in the FCA’s
September 2020 market study, which found that millions of home
and motor insurance customers lose out if they renew repeatedly
with their current providers. In 2018, 6 million loyal policy
holders would have saved £1.2 billion had they paid the average
price for their actual risk.
Many firms increase prices for existing customers each year at
renewal – this is known as price walking. This means that
consumers have to shop around and switch every year to avoid
paying higher prices for being loyal.
It also distorts the way the market works for everyone. Many
firms offer below-cost prices to attract new customers. 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 FCA’s new rules will stop firms price walking. 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 £4.2 billion over 10 years, by removing the
loyalty penalty and making the market work better.
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,
- require insurance firms to do more to consider how they offer
fair value to their customers, and
- require home and motor insurance firms to report data to the
FCA so that it can supervise the market more effectively
Sheldon Mills, Executive Director, Consumers and Competition at
the FCA commented on the new rules:
‘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.
‘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.’
The pricing, auto-renewal and data reporting remedies come into
effect on 1 January 2022. The rules on systems and controls,
product governance and premium finance take effect from the end
of September 2021.
Alongside today’s Policy Statement, the FCA has also published research on
how incentives affect consumers’ choices, focusing on purchases
of motor and home insurance made through price comparison
websites. The research was undertaken to inform our approach to
the new pricing rules.
The FCA will continue to monitor the market closely to ensure
firms are ready to implement the pricing changes on time. The FCA
will also review the effects of the remedies over the course of
2022, ahead of a full evaluation in early 2024.
Notes to Editors:
1. Read PS 21/5: General
insurance pricing practices market study (PDF)
2. Infographic: Home and
motor insurance
3. Research Note: Discounts,
Cashbacks, and Soft Toys: The Impact of Promotions on Consumer
Decisions in the General Insurance Markets
