Insurers to be banned from renewal price hikes for loyal customers
The Financial Conduct Authority (FCA) has revealed a number of proposals to tackle concerns about general insurance pricing following a study of the industry.
It proposes that when a customer renews their home or motor insurance policy, they pay no more than they would if they were a new customer with the firm when buying through the same channel.
As an example, if an existing customer bought a policy online, they would be charged the same price as a new customer buying online.
The FCA said that while firms would be free to set new business prices, they would be prevented from increasing renewal prices over time – known as ‘price walking’ – other than due to changes in a customer’s risk profile.
It is also consulting on making it simpler to stop automatic renewals across all general insurance products.
The proposals come after its market study revealed concerns about pricing, and it wants to enhance competition, trust and fair value for customers.
It said firms use “complex and opaque” pricing practices which allow them to raise prices for customers who renew each year. While some switch deals, many lose out for their loyalty.
Further, it said firms target price increases on those less likely to switch and use practices that make it harder for people to leave. As a result, it found six million policyholders were paying high or very high margins in 2018.
If they had paid the average for their risk profile, they would have saved £1.2bn.
The FCA added that its proposed remedies should lead to lower prices, saving customers £3.7bn over a decade.
Christopher Woolard, interim chief executive of the FCA, said: “We are consulting on a radical package that would ensure firms cannot charge renewing customers more than new customers in future, and put an end to the very high prices paid by some long-standing customers.
“The package would also ensure that firms focus on providing fair value to all their customers. We welcome feedback on the proposals.”
The consultation on the proposals is open until 25 January 2021, with any new rules coming into effect four months after it publishes a policy statement.