Loyal insurance customers will no longer pay more for their policies than new customers if new measures proposed by the UK's financial watchdog go ahead.
The Financial Conduct Authority recommended overhauling pricing in the home and motor insurance sector after research found that 6 million customers were needlessly paying very high margins on their insurance policy.
At the moment, insurance companies in the UK are allowed to increase the price of customers' policies year on year- known as 'price walking'- regardless of whether customers' risk-level increases.
The research found that, compared to new customers, customers who had been with the same insurance provider for five years paid, on average:
In its report, the FCA claimed that many firms base customers' policy pricing on how likely they are to switch suppliers in the future, with those less likely to switch being charge higher tariffs.
The FCA called the current pricing strategies' opaque and complex' and said they were harmful to loyal customers.
We are consulting on a radical package that would ensure firms cannot charge renewing customers more than new customers in the 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.Said Christopher Woolard, Interim Chief Executive of the FCA
The proposed changes would tackle firms' pricing strategies by preventing them from increasing prices at renewal. They make it easier for customers to cancel automatic policy renewals by introducing rules that would force companies to be transparent about their pricing strategies.
Firms would also have to provide the FCA with data on their pricing and adopt new governance strategies to ensure consumers get a fair deal.
The changes could save customers up to £3.8 billion over the next ten years, said the FCA.
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 - gradual year-on-year price increases - and making companies automatically switch their customers to better deals.In response to the FCA's announcement, Chief Executive of Citizens Advice Dame Gillian Guy said:
The Association of British Insurers (ABI) defended the actions of insurers, saying that work was already underway:
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.said ABI director general Huw Evans
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