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FCA stops insurance companies’ loyalty penalty

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.

bmw car hire

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

FCA announces remedies to stop the loyalty penalty

How to save money on insurance and beat the auto renewals

How to save money on insurance and beat the tactics used to make you renew

 

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Financial issues Latest News

Regulator slowly, finally makes moves to resolve major insurance market issues

FCA tackles the insurance penalty – at last!

The Financial Conduct Authority (FCA) has announced today that it will reform home and motor insurance, focussing particularly on the current “loyalty penalty” that punishes existing loyal clients’ premiums and favours new clients.

The FCA found in 2018 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!

The FCA has published a 31-page report on the insurance market and finally (two years later!) announced a consultation on the following:

  • Product governance rules requiring firms to consider how they offer fair value to all insurance customers over the longer term.
  • Requirements on firms to report certain data sets to the FCA so that it can check the rules are being followed.
  • Making it simpler to stop automatic renewal across all general insurance products.

“The FCA is proposing that when a customer renews their home or motor insurance policy, they pay no more than they would if they were new to their provider through the same sales channel.”, says the regulator’s announcement today.

If the proposal goes ahead it is estimated that £3.7 billion would be saved by insurance customers over 10 years. Methinks the insurance companies won’t like these proposals!

Loyalty Super Complaint

The FCA’s action originates in September 2018, when the Citizen’s Advice Bureau launched a  “Super Complaint” calling on the regulator to look into how consumers are being penalised for loyalty in 5 key sectors. It requested an outline from the CMA on what action would be taken to resolve the problems.

CAB launches super-complaint into penalising loyal customers

FCA Consultation on insurance prices

The FCA’s consultation is open until 21 January 2021, to be followed by analysis of feedback and a Policy Statement, with new rules due later that year. We’ve all known that these practices have been going on for years and the Super Complaint was made two years ago. It beggars belief that it will be three years from this complaint before something is done.

FCA dragging its feet

In a statement made in September 2018 the FCA said

“In the FCA’s 2018/2019 Business Plan we announced that we were looking at the pricing practices of general insurance firms. As part of that work we will launch a market study looking at how general insurance firms charge their customers for home and motor insurance. The terms of reference for this market study will be published in a few weeks’ time.”

So, why has it taken so long?

In the meantime here are the measures you can take to ensure that you are not losing your share of the 1.2 billion that insurance companies are overcharging their loyal customers!

grid of 4 cars

 

See How to save money on your car insurance

 

 

 

 

See How to save money on insurance and beat the tactics used to make you renew a story of how to get round the company wanting to make you phone to cancel a renewal…

How to save money on insurance and beat the tactics used to make you renew