The Financial Conduct Authority is clamping down on “price walking” and the “loyalty penalty” that sees insurers price gouge existing customers in a shake-up which could save customers £4.2 billion over 10 years.
For years insurers have faced accusations that they offer the best deals to new home and car customers, paid for by punishing those who don’t shop around.
Today the City watchdog called time on that, saying that renewal quotes in future cannot be more expensive than they would be for new applicants.
The FCA reckons that in 2018, six million loyal policy holders would have saved £1.2 billion had they paid a market price for their actual risk.
Sheldon Mills, executive director, Consumers and Competition at the FCA said:
‘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.’
The FCA says insurers will have to report more data to that it can police the market more effectively.
This move follows a “super-complaint” by Citizens Advice.
Matthew Upton, Director of Policy at Citizens Advice, said: “It’s more than two years since we submitted our super-complaint on the £4 billion-a-year loyalty penalty paid by consumers across the mortgages, savings, mobile, insurance and broadband markets. We’re pleased to see the FCA setting the bar so high in stamping out this systematic scam, and we now need to see similar action in the other markets.
“No longer will loyal insurance customers face price-walking – gradual year-on-year increases – that can leave them paying way over the odds. Instead firms will have to do the right thing and offer them the same deal as a new customer.
“For us, and those loyal customers, this fix cannot come soon enough.”
Critics note that this shake-up inevitably means that some customers will now pay higher fees.