Insurance Renewal Prices to be Fairer for Loyal Customers

From January, people getting a renewal on their motor or home insurance policy will not pay more than new customers do.

Following years of complaints, regulatory body the Financial Conduct Authority (FCA) are stepping in. They are enforcing the new rules in a bid to stop insurers penalising loyal customers, and could help them save an estimated £4.2bn over 10 years.

For a long time, insurance firms have been in the practice of automatically raising prices each year when a policy comes up for renewal. The prices increase despite there being no change to risk levels or circumstances. This is something the regulator has been trying to stop this happening for years.

Although this is good news for returning customers, it could mean the end of cheap deals for new ones. A spokesman for the Association of British Insurers says insurance companies do not tend to make excessive profits, so it likely they will not be able “to offer unsustainably low-priced deals” any more.

Consumers will still have the chance to shop around and negotiate with their current provider. But existing customers will not be charged a higher price, just because they are renewing.

“Price walking”

The process of charging more each year to people who stay with the same company is called “price walking”.

For example, a new customer taking out a home insurance policy typically pays £130 for a year’s cover. However, a customer who has remained with the insurer for five years is charged an annual premium of £238 for the same policy.

The same is evident in motor insurance. A new customer pays £285, while those with the provider for over five years pay £370.

Searching for a better deal

Cheapest deals for new customers comes as a result of the growing trend to shop around and use comparison sites. Companies give incentives to encourage people to switch to a new provider for a better deal. This means those new customers benefit from the best deals, while those who stay loyal get charged more.

Ten million motor and home insurance policies are with companies that have been their provider for five years or longer. Many people just auto renew with the same provider without even checking or thinking about it, as it is the easy option. However, these days people are a lot more savvy and wise to what is happening.

As simple as it may be to perform a quick search on the internet to find the best quotes, it may not be so easy for everyone. People on very low incomes may not be able to afford the technology, or some people may find it difficult to do the calculations.

Citizens Advice are pleased the FCA are finally taking action, and want to see similar done in other markets now too.

New rules are also coming in so consumers can cancel automatic policy renewals more easily.

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