Financial Conduct Authority (FCA) have confirmed measures to protect customers from the ‘loyalty penalty’ in home and motor insurance markets. These measures include a package of remedies to improve competition, new rules on renewal quotes for home and motor insurance consumers that ensure customers renewing policies do not pay less than they would if they were for a new customer.
The measures seek to address the issues identified in the FCA’s September 2020 market study, which found that millions of home and motor insurance customers lose out if they renew with their current providers meaning these customers pay a ‘loyalty penalty’ when renewing their policies. The study found that in 2018, a total of £1.2 billion could have been saved across 6 million policy holders had they paid the average price offered to customers for their actual policy risk.
It is common practise for many firms to increase prices for existing customers each year at renewal – known as ‘price walking’. The FCA’s new rules seek to stop this across the industry. Insurers will be required to offer renewing customers a price that is no higher than they would pay as a new customer. This is likely to mean that firms will no longer offer ‘unsustainably low-price deals’ which aim to attract new customers.
In addition to the new rules on pricing for home and motor insurance, the FCA is also bringing in new rules to:
- Ensure Insurers provide easier methods of cancelling the automatic renewal of their policy
- Require insurance firms to do more to consider how they offer fair value to their customers, and
- Require insurance firms which offer home and motor policies to report data to the FCA so that it can supervise the market more effectively.
The FCA estimate that these measures will save consumers £4.2 billion over 10 years. The pricing, auto-renewal and data reporting remedies come into effect on 1 January 2022. The rules on systems and controls, product governance and premium finance take effect from the end of September 2021.