Today, (28/05/21) the FCA implements a package of remedies to improve competition and protect home and motor insurance customers from loyalty penalties. This follows the announcement on 22 September 2020 when the FCA said that it would reform home and motor insurance. It is focussing particularly on the current “loyalty penalty” that punishes existing loyal clients’ premiums and favours new clients.
In 2018 it found that some 6 million policyholders were paying high or very high margins over and above an average premium. Had they have paid the average for their risk, they would have saved £1.2 billion! It published a 31-page report on the insurance market and finally (two years later!) announced a consultation in September which closed 21 January 2021.
Many insurance companies auto renew policies at a much higher price. New customers benefit from a much lower price. A term known as “price-walking”. The only way to get a better price currently is to shop around and switch. The companies even use what could be considered underhand processes and tactics to target customers who they think are the least likely to switch with the best deal.
The FCA estimates that consumers will save 4.2 billion over 10 years. The measures are due to come into force on different dates. The pricing, auto-renewal and data reporting remedies come into effect on 1 January 2022 and the rules on systems and controls, product governance and premium finance from the end of September 2021.
New rules for insurance companies
The new rules will mean that insurance companies must
- Provide easier methods of cancelling the automatic renewal of their policy.
- Offer the same price at renewal as they would to a new customer
- Report data to the FCA for it to monitor and supervise the sector more effectively
- Consider how they offer fair value to their customers
The FCA needs to ensure that it monitors adherence to these rules and takes action against companies which don’t. It still does not mean that you will get the best price on renewal as there could and probably will be better offers out there. See How to save money on your car insurance
How to save money on insurance and beat the auto renewals
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