From 1 January insurers will be
banned from quoting customers a higher price
for renewing their home or motor insurance than they
would pay if they were a new customer. The new
rules brought in by the Financial Conduct
Authority (FCA) are expected to save consumers
£4.2bn over the next 10 years.
The FCA’s reforms follow a review that uncovered that many
insurers were increasing prices for renewing customers
year-on-year – a practice known as price walking.
As well as leading to higher prices
for loyal customers, price walking distorted the way
the whole insurance market worked. Many firms
offered below-cost prices to attract new
customers, who then paid more over time if they renewed
their insurance. Insurers used sophisticated processes
to target their best deals at customers who they thought were
less likely to switch in future.
Sheldon Mills, Executive Director,
Consumers and Competition at the FCA,
commented:
‘Our interventions will make the
insurance market fairer and make it work better.
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 FCA’s package of
reforms coming into effect in January also includes new
rules to give consumers easier methods of cancelling the
automatic renewal of their policy, and to require insurance firms
to demonstrate that their products deliver fair value to
customers.
Notes to
Editors
-
FCA
Policy Statements on general insurance pricing
practices
-
The pricing rules come into effect
on 1st January, and apply to renewal notices going
out after this point. If a consumer’s renewal notice went
out in December and their policy renews after 1st January, the
rules would not apply.
-
Any firms that are
unable to implement the technical changes required to comply
with the new rules before 17 January will need to ensure that
consumers do not lose out as a
result.
