As of the 1 January 2022, insurance firms must ensure that they do not quote customers renewing their home or motor insurance a higher price than they would pay if they were a new customer.
The FCA expect these new rules to save consumers £4.2bn over the next 10 years.
The FCA’s reforms follow a review that uncovered that many insurers were increasing prices for renewing customers year-on-year – a practice known as price walking.
As well as leading to higher prices for loyal customers, price walking distorted the way the whole insurance market worked. Many firms offered below-cost prices to attract new customers, who then paid more over time if they renewed their insurance. Insurers used sophisticated processes to target their best deals at customers who they thought were less likely to switch in future.
The FCA’s package of reforms coming into effect in January also includes new rules to give consumers easier methods of cancelling the automatic renewal of their policy, and to require insurance firms to demonstrate that their products deliver fair value to customers.