The new year marks a major insurance shake-up. The City watchdog has established strict rules that prohibit insurers from overcharging loyal customers. 

It is a victory for Money Mail, which has long campaigned to end the £1billion-a-year loyalty penalty. However, our investigation today revealed that customers will have their heads about them to avoid paying more than necessary. 

Experts have accused the firms of using sleazy pricing tactics to make as much money as possible as they approach the deadline. Some policyholders believe that insurers continue raising premiums for renewals, despite offering lower rates to new customers. 

The start of the largest insurance shake-up in decades marks the beginning of the new year

Others offer tiny price cuts to keep their businesses afloat. You could miss out on significant savings by not challenging your renewal quote due to a sharp fall in the cost for coverage since the pandemic. It is estimated that car insurers have already pocketed £3.3billion during the Covid crisis by failing to pass on savings to customers, according to the Association of Consumer Support Organisations. 

Firms made an extra £118 per customer but gave discounts worth just £25 to policyholders, on average, the research showed. As insurers try to minimize the impact of the new rules, experts warn new customers to expect price increases of up to 30% next year. 

They also claimed that insurers will be eager for data. This could mean that drivers and households will have to complete lengthy questionnaires when applying. Here, Money Mail explains everything you need to know about the new era of insurance pricing — and how to get the best deal. 

WHAT WILL CHANGE? 

Insurers have been increasing prices for their loyal customers, often elderly, for years while enticed new customers with discounts that can be hundreds of dollars cheaper. Firms will be required to offer the same price to both new and existing customers starting January 1. This also applies to cashback and vouchers. So if a firm offers new customers a £20 gift card, those renewing their policy should get a discount of the same value. 

Prices can vary depending on the channel you use to purchase your policy. If you purchased a policy through a price comparison website, your premium may be different than if you went directly to the insurer. Your individual circumstances, as well as any claims you have made, will impact your premium. The new rules only apply to car and home insurance — but not other types of policies such as boiler breakdown, pet and life cover. 

PREMIUMS WILL GO UP 

The average motor insurance premium dropped by 11pc to £619 in the 12 months to August, according to data from Comparethemarket

The average motor insurance premium dropped by 11pc to £619 in the 12 months to August, according to data from Comparethemarket

After the pandemic, car and home insurance prices have dropped since then due to a drop in claims as policyholders stayed at home. The average motor insurance premium dropped by 11pc to £619 in the 12 months to August, according to data from Comparethemarket. Meanwhile, the cost of a typical building and home contents policy fell by 7pc to £191.38. 

Experts warn that prices may rise once more customers switch to them. This is because insurers can’t charge loyal policyholders higher premiums. Smart switchers may lose out if firms stop offering cheap deals to existing customers. Money Mail was told by industry sources, that new home insurers could end up paying around 30% more next year while car insurance costs could rise 15%. 

If you’ve been with the same insurance company for years, you may be eligible for a significant price reduction. According to data from the Financial Conduct Authority (FCA), experts believe this could lead to a 40 percent reduction in home insurance costs for homeowners and a 10 percent reduction for motorists. The price gap is smaller because motorists are more likely than home insurance customers to shop around for coverage. 

I TURNED 3p SAVING INTO £50

Maddy Watkins was 3p less than the previous year when she received her car insurance renewal offer in June. But after searching online, she discovered that her insurer Hastings was offering new customers the same deal for £50 less than the £487.27 price she had been offered. 

Maddy, a 23-year-old nurse, passed her exam in 2016. She had expected her premium to continue falling as it had in previous year’s. She has never filed a claim so she called Hastings to get a cheaper policy. 

Maddy, a Leicester resident, said that it was cheeky to offer her such a small discount. It was almost as if they thought I would accept it and not shop around. 

A spokesperson for Hastings said that the firm had not “completed the necessary system modifications” when Maddy renewed her policy. He said, “We continue our proactive support and work towards the FCA regulatory changes in the coming months.” 

SCAN I STILL GO AROUND? 

According to a survey conducted by Comparethemarket, only a third of home insurer customers said that they would make an effort to shop around for new policies after January’s new rules came into effect. However, households are being urged to not accept the renewal offer after January. This price is the lowest deal offered by that firm for a specific level of coverage. 

You can still find a cheaper policy through comparison websites. Drivers can currently save around £267 by shopping around for a better car insurance deal and £110 for home cover, according to research by Comparethemarket. These savings are expected to decrease next year, but comparison websites will likely offer incentives for new customers. 

GoCompare, for example, is offering drivers who use its website £250 towards any excess they may have to pay when claiming on their car insurance. The new rules allow for these incentives for new customers, provided that the insurer is not funding them directly. The sites will allow insurers to offer exclusive deals. However, existing customers should be able to take advantage of these deals. Customers who purchase policies through cashback sites such as Quidco and TopCashback may also be able to save additional money. 

IS IT BEST TO SWITCH NOW 

Be sure to find cheap deals elsewhere if your policy expires before the end the year. Many customers reported staying with their existing insurer despite receiving a slightly lower quote when renewing. Research by Comparethemarket has shown that more than 25% of customers with home and car insurance had their premiums drop in the last 12 months. 

But around a fifth of these policyholders said they had been offered discounts of £9 or less. You can save hundreds of dollars by shopping around, as premiums are falling. Ursula Gibbs is a site director. She says that insurers are trying lock in as many customers as they can and to drive down switching. 

Confused.com’s chief executive Louise O’Shea says: “If your renewal price is lower than last year, it’s probable that other insurance companies have cut their rates too.” It’s worth shopping around before you accept small discounts. According to MoneySavingExpert’s analysis of millions of quotes, the best time to shop around to find a new car insurance policy is 23 days before you renew your quote. For home insurance, it is 21 days before your policy expires. 

This is because insurers tend not to consider those who wait until the last moment as more risky. Consider renewing your policy before the new rules take effect if it doesn’t expire. If you paid full price for your insurance, your insurer should reimburse you for any months not used. But there may be an exit fee of around £50, so you must to be able to save more than this for it to be worthwhile. You won’t lose any perks if you switch early, such a year of no claims that can earn you future discounts. 

HOW CAN INSURERS RESPONSE TO THE MOVE 

Insurers may begin asking new customers more questions to ensure they are not losing out by offering cheap prices to higher risk customers

Insurers may ask more questions of new customers to ensure that they are not losing money by offering low prices to customers who are at higher risk

Insurers have attracted new customers in the past by offering low-cost policies that rank high on comparison websites’ best-buy tables. Experts predict that insurance companies will start offering different levels and types of coverage starting January. Ryan Fulthorpe, of comparison site Go­Compare, says: ‘We could start seeing more bronze, silver and gold policies — with gold plans offering the most extensive cover at the highest prices.’ 

If the customer has more coverage than the cheapest deal, insurers may be able to justify raising their prices at renewal. A lot of people believe that insurers may use more detailed information to price premiums. Fairer Finance consumer group leader James Daley said that age could be used as a reason to increase the price of renewal. A firm could tell a 44-year-old man that it prices 43-year old men differently. However, if an insurer chooses this route, they will have all new 44-year old policyholders charged the same price. That could result in them losing out on business. 

THE RENEWAL TRAP COST MY DEARLY 

Gordon, 98 years old, bought home insurance with Age Co 11 year ago. He believed the policy, which was offered by Age UK charity, would be fair. Janet Wilson (his niece) discovered that he was overpaying by hundreds. Gordon, who didn’t want to reveal his surname, had set his policy to auto renew each year. 

But the policy price increased again last month, by £43.74 to £568.47. He was paying an extra £50.88 a year because he does monthly instalments. Janet has found him another deal for less than a sixth of the price, at £86.80. 

Gordon, a Barnsley widower says that he was probably careless. I just let it roll over. The company was connected to Age UK so I wasn’t expecting it to rip off me. Age Co spokesperson said that the company takes its responsibilities seriously. He added: “Every year, we ask customers for verification of their policy and cover to ensure that all information and the policy continues meeting their needs.” 

Gordon has been offered a £1,123 goodwill gesture but has refused it. 

Insurers may ask more questions of new customers to make sure they aren’t losing money by offering lower prices to customers with higher risk. Darren Black, head of insurance at Nationwide, says: ‘Some home insurers will ask a customer if they have a cat or a dog, because dogs are more likely to knock something over. As firms are hungry for as many data as possible, we could see more of these types of questions and longer applications. 

Another concern is that insurers might try to manipulate it by increasing premiums for new clients when they are due send out large amounts of renewal letters. They would no longer have to offer customers such low-cost deals. To be positive, insurers can strive to improve customer care to stand out among the crowd. Mintel conducted a survey to find out that 32 percent would switch their home insurance provider if they found a better service record. 

WHAT ABOUT EXTRA FEELS? 

Customers who spread the cost of their annual policy over 12 monthly instalments are often charged high rates of interest, which can add more than £100. Additional fees are often charged by insurers for any changes made mid-policy. The FCA’s new rules will require firms to think more about what they offer in terms of ‘fair value’. 

Experts suggest that this could mean that punitive charges will be scrapped or reduced. Brian Brown, data analysts Defaqto says that although these fees may not disappear overnight, firms might decide to lower them if it is difficult to justify them as fair. Customers who have policies that renew automatically every year will need to be able to cancel them easily. This might include reducing wait times and reducing call waiting. Drivers should remember that car insurance is a legal requirement. The option to allow a policy rollover ensures that you are always covered. 

WHICH FIRMS ARE THE WORST HITTERS? 

Larger companies, such as Aviva, Axa and Direct Line, will likely have the largest databases of customers. This means they may have to reduce premiums for more policyholders than their rivals — which could in turn force them to increase prices across the board. According to industry sources, these types are more likely to have the capital in place to weather the change. 

If households are less likely to shop around, smaller firms may have trouble attracting new customers. Darren Black states that it is possible for some smaller firms to leave the market completely. James Daley agrees that smaller firms may have the advantage of having fewer customers, which could mean they can offer lower renewal prices to them. 

HOW TO MAKE AN APPLAINT 

The FCA will closely monitor how insurers respond. The FCA will also require that firms provide more information regarding pricing and policies. You can also complain if you find that you have been charged too much over the years. If the firm refuses to address your complaint, you can go to the Financial Ombudsman. 

Over a fifth of premium price complaints were resolved in favor customers last year. A spokesperson for the Association of British Insurers stated that it fully supports reforms and will be working closely alongside the FCA to ensure they’re implemented effectively. 

He added: “As the FCA stated previously, in a highly competitive marketplace where insurers don’t make excessive profits, any revision will likely lead to a rebalancing between renewing and new customers. “Motor insurers supported customers during the pandemic by providing coverage for key workers and free transportation to work. 

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