Higher insurance premiums for loyal customers prohibited by the regulator

New rules must be introduced to prevent home and auto insurers from imposing so-called loyalty penalties on customers, the financial watchdog said.

The Financial Conduct Authority (FCA) has said it is cracking down on unscrupulous companies to end the practice of offering existing customers higher quotes than new ones.

Regulators discovered last year that millions of customers were unfairly being charged higher prices, including an additional £ 1.2 billion in 2018 alone.

Insurers will be required to offer renewed customers a price that is no higher than what they would pay as a new customer.

But those who regularly seek out a cheaper deal, who are often younger customers, might end up paying more, with discounts becoming smaller and more scarce.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “Regular money changers will pay the price. This is something we see regularly from FCA now, where efforts to protect the most vulnerable customers end up costing savvy consumers more. “

Ian Hughes, managing director of data consultancy Consumer Intelligence, said: “The smartest consumers who shop every year will see prices go up and discounts and offers disappear.

“However, there is an opportunity for the industry to take advantage of all of these coming changes and do something that is good for brands, good for the industry and good for consumers.”

The FCA has admitted that the changes are likely to end unsustainable low-cost offers for some customers.

But officials said overall, consumers would save £ 4.2bn over 10 years.

Many companies increase prices for existing customers each year upon renewal in a practice known as price walking.

FCA said, “This means consumers have to shop around and change every year to avoid paying higher prices to be loyal.

“It also distorts the way the market works for everyone. Many companies offer prices below cost to attract new customers.

“They also use sophisticated processes to target the best deals to customers who they believe won’t change in the future and therefore pay more.”

The watchdog added that the new rules will also make it easier for customers to cancel automatic policy renewals and force insurance companies to do more to think about how they are delivering fair value to their customers. .

Insurers will also need to send data to the FCA so that the regulator can monitor the market more effectively.

Sheldon Mills, executive director of consumer and competition at FCA, said: “These measures will end the very high prices paid by many loyal customers.

“Consumers can still benefit from shopping or negotiating with their current supplier, but won’t be charged more on renewal just for being an existing customer.

“We are making the insurance market work better for millions of people. We will closely monitor market developments going forward and ensure that companies continue to deliver fairer value to consumers. “

The new rules will take effect on January 1 of next year and their impact will be examined in a full assessment in 2024.

Charlotte Clark, director of regulation at the Association of British Insurers (ABI), said: “While the FCA recognizes that their interventions could lead to price increases for consumers who shop regularly, these remedies should ensure that all customers get fair results from competitive insurance. markets.

“It is essential that the new rules are applied across the entire insurance market, including price comparison sites and insurance brokers, with a uniform level of supervision and control by the FCA, to guarantee good results for customers.

“As the FCA has said previously, insurers are not making excessive profits and, as they now point out, it is likely that companies will no longer be able to provide unsustainable low-cost deals to certain clients. “

Rodney Bonnard, UK Insurance Manager at EY, said: “In practice we would expect this to be beneficial for clients in the long run, but clients who change providers regularly may pay more once the reform is implemented. implemented.

“Immediately after the transition, we may well see some product consolidation, but over time innovation will be critical to competitive advantage.”

Gareth Shaw, CFO at Which ?, said: “For too long insurance companies have used sharp pricing tactics to entice customers before hitting them with frightening price hikes and sky-high premiums, it is so just that measures end up being introduced to help end these unfair practices. “

Citizens Advice had previously filed a “super complaint” with the Autorité de la concurrence et des marchés over the loyalty penalty paid in the mobile, broadband, home insurance, mortgage and mortgage markets. savings.

Matthew Upton, Director of Policy at Citizens Advice, said: “For us, and for these loyal customers, this fix cannot come soon enough.”