This comes as the FCA has proposed to ban car and home insurers from charging existing customers at a higher rate than new customers.
The FCA has announced that insurers will be banned from gradually increasing their insurance renewal prices each year – an unfair practice known as ‘price walking’.
Ten million policies across both home and motor insurance are held by people that have stayed with the same provider for five years or more. This means many consumers are paying considerably more than new customers.
Why is the FCA proposing banning the loyalty penalty?
Your car and home insurance policies auto-renew each year, which is a convenient and easy way of staying insured. It ensures that policyholders are re-enrolled for another year of cover, unless they opt to cancel their policy entirely.
The problem is that many consumers don’t shop around at the end of their policy for a better deal. As a result, they often see their premiums increase when their policy is renewed, for apparently no good reason.
For many years, consumer campaigning groups have been trying to get these unfair annual price hikes banned. Change was prompted when the charity Citizens Advice submitted a ‘super complaint’ to the FCA last year. This led to the Competitions and Markets Authority insisting that insurers stop these unfair practices.
A thorough FCA investigation into the loyalty penalty was prompted in the wake of this campaign, and their findings have led to the proposed ban of the unfair pricing strategy.
Key findings from the FCA include:
- New customers pay £285 on average for car insurance
- Loyal consumers (who have been with insurer for over five years) pay an average of £370 for car insurance renewal
- New buildings insurance customers pay £130
- Existing buildings insurance customers pay almost double - £238
- 1 in 3 people paying higher premiums are considered vulnerable
- Insurance companies raise barriers to make switching more difficult by design
- However, sometimes even switching deals doesn’t save a consumer money
The FCA learnt that when insurance companies set a price for a consumer, they take into account how likely a customer is to switch. If they believe they can comfortably charge more without the consumer eventually switching to a better deal, they will hike their prices.
Of course, none of this strategy is revealed to consumers, who might surely be more willing to show less loyalty to their insurer if they understood the regard their insurer had for their custom.
The strategy is to sell policies to new customers at discounted rates and then increase premiums annually to those least likely to switch. In effect, this punishes consumers for their loyalty.
Christopher Woolard, interim Chief Executive of the FCA, commented on the report: "This market is not working well for all consumers.
"While a large number of people shop around, many loyal customers are not getting a good deal. We believe this affects around 6 million consumers.
"We are consulting on a radical package that would ensure firms cannot charge renewing customers more than new customers in 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. We welcome feedback on the proposals."
In addition, Dame Gillian Guy, chief executive of Citizens Advice, prompted the FCA to act, saying: 'It is essential that the FCA confirm and implement these changes quickly to bring insurance customers' prices down by £370 million a year.”
What are the changes to insurance renewals?
The proposals are expected to come into effect in 2021, so until then, consumers will be able to save money on insurance by comparing car and home insurance policies online.
When the proposals are finally in play, insurers will have to offer renewing customers the same price they would give to an equivalent new customer purchasing a policy via the same method.
So, you as an existing customer would be entitled to the same price that a new customer can find by comparing deals on this website. This levels out the playing field for all consumers and means vulnerable consumers, such as the elderly or those with lower financial capabilities, will not face higher rates by staying with the same insurer.
How could the changes benefit me as a consumer?
The FCA forecasts that motor insurance customers could save £62 a year on average as a result of car insurance renewal.
Meanwhile, home insurance customers who have renewed five times or more could see their premiums for buildings and contents insurance fall by £55.
In total, the FCA discovered that 6 million home and car insurance policyholders could save a combined £1.2 billion a year, should they all pay the average premium for their risk profile.
How can I stay up to date with the changes?
To know when the changes will become law, you can visit the FCA’s website for updates.
Compare car and home insurance
“So when is the best time to renew your car insurance?”
With the changes to combat price walking unlikely to be fully in-place until late 2021, if your policy expires before then, you may be charged a higher premium when your policy auto-renews. To avoid this, you can switch to a better deal, by comparing deals on our site just before your policy is due for renewal.
You should be able to find the date when your policy will renew from your insurance provider. We present a range of current deals from across the car insurance and home insurance markets on our car insurance comparison table and home insurance comparison table.