Yahoo Finance FCA outlines new rules to protect insurance customers from loyalty penalty
Britain's financial watchdog has outlined a package of new measures to improve competition and protect loyal insurance customers from paying higher fees.
The Financial Conduct Authority (FCA) said the changes will save existing insurance customers up to £4.2bn ($6bn) over the next 10 years.
The changes which come into effect in January 2022 also include new rules, which ensure renewal quotes for home and motor insurance consumers are not more expensive than they would be for new customers.
"These measures will put an end to the very high prices paid by many loyal customers," said Sheldon Mills, executive director, consumers and competition at the FCA. "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."
The FCA, which has been trying to tackle the loyalty penalty, said its new rules will stop firms "price walking."
Price walking is when a customer is charged more, every year, by staying with the same insurance provider — even though their risk is no greater.
The FCA says the practice "distorts the way the market" works for everyone as many companies offer below-cost prices to attract new customers.
It added: "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."
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The penalty is a result of the growth, and encouragement, of shopping around for better deals for insurance, overdrafts and utilities.
This means, loyalty customers often get charged more, whereas those who switch get the best deals, the same as new customers.
"It is vital that the new rules are applied across the whole insurance market, including price comparison websites and insurance brokers, with a uniform level of supervision and monitoring by the FCA, to ensure good customer outcomes," Charlotte Clark, director of regulation at the Association of British Insurers said.
"As the FCA has said previously, insurers do not make excessive profits and, as they now point out, it is likely that firms will no longer be able to offer unsustainably low-priced deals to some customers."
In addition to the new rules on pricing for home and motor insurance, the FCA is also bringing in new rules to give most consumers easier methods of cancelling the automatic renewal of their policy.
It will also require insurance companies to do more to consider how they offer fair value to their customers.
Home and motor insurance providers will be required to report data to the FCA so that the watchdog can supervise the market more effectively.
"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," Mills added.
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