Insurers Not to Penalise Loyal Customers.
People renewing their home or motor insurance will pay no more than they would as a new customer from January. The new rules have been confirmed by the City regulator, the Financial Conduct Authority (FCA), following years of complaints.
The FCA says the move will save loyal customers an estimated £4.2bn over 10 years. But it admitted it could spell the end of the cheapest deals for new customers.
The regulator has been trying to change the rules to prevent “price walking” – when insurance prices rise at each renewal even though the level of risk has not changed. “These measures will put an end to the very high prices paid by many loyal customers,” said Sheldon Mills, from 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.”
It follows complaints from consumer groups that loyal customers pay more unnecessarily.
So-called price walking is when a customer is charged more, year after year, by staying with the same insurance company – even though their risk is no greater.
The FCA has pointed to an example in which a new customer for home insurance typically pays £130 for a year’s cover.
But for the same policy, having stayed with the same insurer for five years, that annual premium rises to £238.
For motor insurance, new customers pay £285 while people who have been with their provider for more than five years pay £370, according to the FCA’s example.
Following a super-complaint from Citizens Advice, the FCA has been looking to tackle the loyalty penalty – a result of the growth, and encouragement, of shopping around for better deals for insurance, overdrafts and utilities.
Those who switch get the best deals as new customers. Those who stay loyal get charged more.
Ten million policies across home and motor insurance are held by people who have been with their provider for five years or more.
A spokesman for the Association of British Insurers, which represents the sector, said: “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.”
He added that it was vital that customers still had incentives to shop around, and that people should look for the deal that suited their needs instead of just choosing the cheapest one.