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Car and home insurers to be banned from charging renewing customers more than newbies in loyalty penalty crackdown

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Emily White
Emily White
Senior News & Investigations Reporter
Created 28 May 2021 | Edited 1 June 2021

Car and home insurers are to be banned from charging existing customers more at renewal than they would expect to pay when taking out a new policy with the same firm, as part of a ‘loyalty penalty’ crackdown. The financial regulator estimates the shake-up will save £4.2 billion over 10 years.

Currently, many insurers hike renewal prices for existing customers in a process known as “price-walking”. This means you have to switch to avoid paying more for being loyal. In 2018, 6 million policyholders could have saved a combined £1.2 billion had they paid the average price for their actual risk, according to the Financial Conduct Authority (FCA). It also found some firms target the best deals at customers they think will not switch.

But under new rules from the FCA, which take force from 1 January 2022, insurers must: 

  • Offer renewing customers the same price as new customers. So you shouldn't pay any more when renewing than someone with a similar risk profile who's taking out a new policy. Importantly though, renewing customers only have to be offered the same price as new customers who use the same 'channel', such as a comparison site. So if you took out a policy via a comparison site, when you renew the insurer should treat you the same as someone taking out a new policy via that same comparison site.

    What this means is that the price for new and existing customers who come via one comparison site may differ to the price for those who come via another comparison site - what's key is the route you use to take out a policy. Price hikes at renewal will continue to be allowed so long as they're reflected in new prices too.

  • Factor any monetary incentives for new customers into the renewal price they offer. This means vouchers or gift cards offered to new customers by insurers will need to be offered to existing customers at the point of renewal. But the rule doesn't extend to non-monetary incentives, such as cuddly toys, which can still be offered to new customers only.

    If a comparison site offers new customers a monetary incentive which is funded by the insurer, this must be factored in when calculating a fair renewal price. But if a comparison site chooses to offer a gift card or voucher which it funds itself, insurers don't have to factor this in - so it's likely we could see some competition here in future, with comparison sites potentially funding monetary incentives to attract new customers. 

  • Not establish sub-brands in order to increase prices for existing customers. Similarly, insurers should not transfer existing customers to other entities within a group, or sell existing customers a product that is only superficially different from the customer’s current product with the sole aim of increasing the price. 

    Theoretically, firms could set-up sub-brands to sell at cheaper prices to new customers, but as soon as customers start renewing the insurer must offer renewal prices that are no higher than for new customers. The FCA adds that it will monitor firms’ implementation of its rules to ensure customers are treated fairly.

  • Report data on their pricing practices to the FCA. This is to ensure the rules are being followed. 

You don’t need to wait until next year to start saving though - see our Cheap Home Insurance and Cheap Car Insurance guides for tips on how to cut costs now.

Martin Lewis
Martin Lewis
MSE founder & chair

Martin's analysis: Prices will meet in the middle, but act now and you may be able to beat the system

MoneySavingExpert.com founder Martin Lewis said: "With firms being forced to offer new and existing customers the same prices, the overall new pricing structure will likely meet somewhere a little above halfway between them.

"That's good news for those who never switch, as renewals will be cheaper - bad news for those who actively scour the market for the best deals, as, while they should still be able to save due to competition, the difference will be reduced and overall they'll pay more.

"Overall though, the move is a popular one - in a Twitter poll I’ve just done, after the first 5,000 votes over 85% were in favour, even including the majority of those who switch regularly.

"Admittedly it's likely big insurers are already working on innovative new pricing structures. Perhaps we'll see them launch new cheap sub-brands to draw customers in without legacy customer bases they'd need to reduce prices for. 

"Yet let me stop crystal-balling, and focus on what matters now. It’s possible today is a sweet spot to check insurance prices. While the new regime starts in January, insurers will likely start to shift their pricing algorithms beforehand – we think there may even be signs of it now (the data isn’t conclusive though).

"This likely means the cheapest prices disappearing rapidly for those who do comparisons and switch. Therefore I'd suggest everyone check car and home insurance ASAP to see if you can cut costs grabbing cheaper switchers' deals, before things start to change.

"Even if you’re not at renewal, if you can find substantial savings, it can be worth moving now to lock in the cheaper prices. As long as you've not claimed, you can usually (check) cancel your existing policy for a £50ish admin fee, and get a pro-rata refund for the rest of the year (though you won't gain this year's no claims)."

Insurers will also need to make it easier to cancel auto-renewals

The FCA shake-up will also see general insurers across the board - not just home and motor insurers - having to commit to the following from 1 January 2022:

  • Providing easier ways for customers to cancel automatic renewals. Firms will be required to offer a range of accessible and easy options for customers who want to cancel auto-renewals. They will also need to explain to customers in the first instance if their contract is set to auto-renew.

  • Following specific rules to offer 'fair value' to customers. This includes making sure policies are of a suitable quality and price, as well as ensuring vulnerable customers aren't exploited or targeted with poor value of products. 

'For us, and those loyal customers, this fix cannot come soon enough'' 

Today's action from the FCA follows a 2018 'super complaint' lodged by charity Citizens Advice after it discovered customers who remained loyal to firms were overpaying by around £4 billion a year. Citizens Advice asked the Competitions and Markets Authority to investigate the markets where a loyalty penalty existed, which it has done alongside regulators, such as the FCA and Ofcom.

Commenting on today's news, Matthew Upton, director of policy at Citizens Advice, said: "It’s more than two years since we submitted our super-complaint on the £4 billion a year loyalty penalty paid by consumers across the mortgages, savings, mobile, insurance and broadband markets. We’re pleased to see the FCA setting the bar so high in stamping out this systematic scam, and we now need to see similar action in the other markets."

He added: "For us, and those loyal customers, this fix cannot come soon enough.”

What does the FCA say?

Sheldon Mills, executive director, consumers and competition at the FCA, said: "These measures will put an end to the very high prices paid by many loyal customers." He added: "We will be watching closely to see how the market develops in the future and to ensure firms continue to deliver fairer value to consumers."

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Car and home insurers to be banned from charging existing customers more than newbies in loyalty penalty crackdown

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