The regulator wants to protect customers from the so-called ‘loyalty penalty’ in the home and car insurance markets.

The ban on hiked renewal quotes is part of a new set of rules which aim to improve competition and protect home and motor insurance customers from inflated costs.

These measures 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 repeatedly with their current providers. The FCA said that in 2018, 6 million loyal policy holders would have saved £1.2bn had they paid the average price for their actual risk.

Many insurance firms increase prices for existing customers each year at renewal – this is known as ‘price walking’. This means that consumers have to shop around and switch every year to avoid paying higher prices for being loyal.

The regulator says this distorts the way the market works for everyone. Many insurers offer below-cost prices to attract new customers. They also use sophisticated processes to target the best deals at customers who they think will not switch in the future and will therefore pay more.

The FCA’s new rules will stop firms price walking. Insurers will be required to offer renewing customers a price that is no higher than they would pay as a new customer.

However, this means it’s likely that firms will no longer offer unsustainably low-priced deals to some customers. But the FCA estimates that these measures will save consumers £4.2bn over 10 years, by removing the loyalty penalty and making the market work better.

The FCA is also bringing in new rules to give most consumers easier methods of cancelling the automatic renewal of their policy. Some insurers, such as Hastings Direct, don’t let customers cancel auto-renewal online, insisting that they phone the company instead.

The regulator will also require insurance firms to do more to consider how they offer fair value to their customers. Home and motor insurance firms will be required to report data to the FCA so that it can supervise the market more effectively.

Sheldon Mills, FCA executive director of consumers and competition, said: “These measures will put an end to the very high prices paid by many loyal customers. Consumers can still benefit from shopping around or negotiating with their current provider – but won’t be charged more at renewal just for being an existing customer.

“We are making the insurance market work better for millions of people. 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.”

The new rules about 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.