The FCA has introduced new rules so loyal customers won’t be overcharged for motor or home insurance when they renew.
I’m sure you go through the same thing every year, but I’ll run it through with you, just in case.
A letter arrives on the doorstep saying your car/home insurance is due for renewal.
*great another bit of life admin to deal with*
So, choices are, deal immediately or put it off to the last minute.
- If you deal now then it’s done. Happy days!
- If you wait you might forget and end up auto-renewing with the price they’ve quoted. Is that a bad thing? Probably, yes!
I am hoping you decide to grab a cuppa and check out your options for 5 minutes during your lunch break.
After a quick Google (other search engines are available), you find the same quote for cheaper.
Erm…then you see the logo of who is cheapest and it’s the same one of the company who offered you the more expensive renewal!
What on earth?!
This practice by insurance companies is known as price walking. And, to avoid price hikes, we all need to shop around each year for a better deal.
Wouldn’t it be simple, and better customer service, if insurance companies just played fair?
Why don’t they simply offer us the cheaper deal in the first place?
How much time and admin time would they save?
Out of principle, we usually get the next cheapest/best overall value, and then have to call the previous insurance company (cause you can NEVER cancel easily online).
You then have to waste time speaking to a person who follows a long script to try and get you to stay, even though you’ve specifically told them you’ve already bought cover elsewhere and have zero intention of staying with them.
New protection for car and home insurance customers
Unfortunately, instead of insurance companies offering a fair deal for their loyal customers, the Financial Conduct Authority has stepped in and forced new rules.
The FCA has confirmed they are going to put in measures to protect customers from the “loyalty penalty”.
One guess is that too many of their own staff were getting sick of “price walking” at renewal time just as much as the rest of the country!
The thing is, it’s not just annoying, but is costing us money.
After the FCA’s market study in September 2020, they found that millions of home and motor insurance customer were overpaying if they renew with the same provider.
Instead of renewing, if these loyal customers paid the average price instead of the renewal price, they would have saved £1.2 billion in 2018.
Insurance companies are going to struggle with overcharging for the insurance risk as the FCA will ensure there are new rules so loyal customers get the same deal as new customers.
The new rules will mean we all save money, but it might mean that you can no longer find a more competitive deal if you do a comparison as a new customer.
One of the reasons you can always find a better deal is that insurance companies offer below-cost prices to attract you.
When they think they have you, they then use a sophisticated process to target the best deals to people they think won’t switch in the future, as a way to claw their money back. Although you got a mega-deal upfront, you’ll end up paying more.
While you might not be able to find new hugely cheap deals, the new rules on pricing will still see consumers save £4.2 billion over 10 years.
New motor and home pricing insurance rules
Under the new rules, which come into effect on 1 January 2022, we will get a better deal when it comes to renewing our home and motor insurance.
An end to price walking
Customers who renew will be offered a price that is no higher than they would pay as a new customer.
Rather than making a long-winded phone call, we will have easier ways of cancelling the automatic renewal of policies.
Although insurance companies are already meant to Treat Customer Fairly, they will have to do more to consider how they offer fair value to their customers.
They will also need to report more data to the FCA so the market can be supervised more effectively.
Sheldon Mills, Executive Director, Consumers and Competition at the FCA commented on the new rules:
“These measures will put an end to the very high prices paid by many loyal customers. 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.
“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.”
Charlotte Clark, Director of Regulation at the Association of British Insurers, said:
“Insurers support these reforms and will continue working closely with the FCA to ensure they are delivered effectively. While the FCA recognises their interventions could lead to price increases for consumers who regularly shop around, these remedies should ensure that all customers get fair outcomes from competitive insurance markets.
“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. 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.
“It will remain important to maintain incentives for customers to shop around, while ensuring competitive deals for those who stay with their insurer. When shopping around people should ensure that they choose the right product for their needs, looking at the overall value of the product, and not just buying price.”
Even though the new rules will mean motor and home insurance companies offer us a better renewal price, it doesn’t mean it’s the best overall deal.
When you get that letter or email letting you know it’s time to renew, it’s still worth taking a few minutes to see if there is another provider who offers the same or better coverage for a cheaper price.
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