Since 1st January 2022, people buying motor and home insurance policies in the UK will no longer be charged any more than they would have been, had they been a new customer.
The new regulations by the Financial Conduct Authority (FCA) aims to protect around ten million loyal and more vulnerable customers, who do not compare and switch to a cheaper policy on renewal.
Those people who switch regularly should in future, in theory, pay more than those who remain with their current insurer and the FCA says it could save customers £4.2 billion over ten years.
Research by the FCA found that insurers were using sophisticated processes to attract customers who they did not think would switch in the future, and who would therefore pay more. With cheap deal incentives including discounts to cinema tickets and soft toys, switching policies has, in effect, distorted the way the insurance market should work by “undermining participants’ price comprehension and ability to select the best insurance deal.”
The FCA set out an example when it announced the new rules. It said a new customer would pay on average £130 for a new home insurance policy. However, after staying with the same insurer for five years, the premiums would have risen to £238.
The new rules follow a ‘super complaint’ by Citizens Advice about the loyalty penalty.
Director of Policy at Citizens Advice, Matthew Upton, said: “Rip-off renewal prices have seen consumers paying over the odds for far too long. No longer can you be exploited just for staying loyal.” He said that the most disadvantaged people tended to be older, on lower incomes, or unable to access the internet.
It is still possible to shop around for a better deal and switch if that’s what you want, but your current provider is not able to charge you more for your current policy than it would charge a new equivalent customer for an equivalent insurance policy.
Further new rules require insurers to do more to offer fair value for consumers, and to make it easier to cancel automatic policy renewals. Home and motor insurance companies will also be required to report more data to the FCA so that the market can be better supervised.
The FCA says it will continue to monitor the insurance market to make sure price changes are implemented on time and will review the effects of these changes during 2022. There will be a full evaluation in 2024.