To protect loyal and vulnerable consumers, new rules coming into effect on 1 January will change the prices paid for home and motor insurance. It means that costs for individuals who swap frequently will rise, while those who have been with the company for a long time would pay less.
Anyone extending their policy would pay no more than if they were a new customer, according to Financial Conduct Authority (FCA) regulations. As per the FCA, the change will save loyal clients £4.2 billion over the next ten years.
Insurers aren’t leaving the market, as a result, said Brian Brown, a consumer finance expert with the market analysts Defaqto. Customers, therefore, have plenty of choices.
The policy discourages “price walking,” which is when a consumer gets paid more every year for staying with the same insurer despite the fact that their risk is the same. When presenting its objectives, an FCA representative used the example of a new house insurance customer paying £130 for a year’s coverage. The annual cost for a housing policy jumped to £238 after sticking with the same insurer for five years.
According to the FCA, new automobile insurance consumers paid £285, while long-term customers paid £370. After Citizens Advice filed a super-complaint about the loyalty penalty, the FCA is enacting new guidelines. Customers who switched were given the best deals, while loyal customers were charged more.
About 10 million policies across house and vehicle insurance are held by people who have been with their insurer for at least five years. Matthew Upton, director of policy at Citizens Advice, believes that renewal prices have been far too high for too long. Consumers can no longer be exploited simply because they are loyal.
Deputy Director of Citizens Advice, Matthew Upton, said: “Consumers have been exploited for too long by rip-off renewal prices. You no longer need to pay over the odds, just because you’re loyal. Further, he explained, those who are older, on lower incomes, or without internet access are at an advantage.
“We welcome the FCA’s bold new rules on home and motor insurance. We now need to see urgent action to protect consumers in the other markets,” he said.
