Car and home insurers will have to end their practice of selling new customers much lower premiums starting in 2022.
While many customers may shop around every year for home and auto insurance, the few who choose to stay with the same company have been subject to a loyalty penalty.
Financial Conduct Authority’s new rules stipulate that renewal policyholders cannot offer premiums greater than what they charge to a comparable customer for the same policy.
This is Money asked an insurance body, the Association of British Insurers about the impact of the changes on the price of customers’ premiums.
The ‘loyalty penal’ within the insurance industry will be addressed by new rules
Are switchers likely to lose the opportunity under these new rules?
New rules ensure that customers who are loyal to their insurers will be protected against excessive price hikes during renewals.
ABI asked the FCA for clarification on whether these rules are applicable to consumers who purchase coverage from an insurance company, broker or price comparison site, as well as retailers.
Essentially, the changes are about are about re-balancing premiums between new and renewing customers.
Even though the FCA acknowledged that these price increases will likely result in customers paying more, particularly if they were previously eligible for large discounts from new business ventures.
ABI stated however that they want the auto and home insurance markets to remain competitive.
Customers should still be free to compare and find the best price and deal.
The new rules will allow premiums to continue being calculated by the insurers using many factors.
In motor insurance cases, the age of the customer, vehicle they drive, and their claims history are all relevant.
Even with the introduction of new regulations, your car insurance renewal premium may still rise
How will you change your renewal?
ABI offers the following guidance to insurance customers regarding when home or motor policies need to be renewed:
- Pick the policy that meets your requirements bestYou should ensure that the policy you purchase is most in line with your requirements.
- Examine the renewal termsIf you have been with your current provider for a while. Read your renewal documents carefully to make sure that the cover meets your current needs and ensure you are aware of any changes to the price, scope of cover, new conditions and any changes in your circumstances that you need to tell your insurer about. Talk to your broker or insurer if you have any questions.
- Deals may disappearSome discounts that are currently on offer may no longer be available once the new rules take effect on January 1. These changes, according to the FCA, could result in fewer attractive introductory premiums available for new customers.
- You might still be better off shopping aroundWith a variety of policy options available from many providers, the insurance market will remain competitive. You should ensure that you have the right policy for you if you’re considering changing your insurer.
- The renewal premium could still increase Your insurance price at renewal can also be affected by external factors, such as whether there have been any vehicle repairs or claims within the last 12 months.
- The auto renewal process will not stop… Certain policies will renew automatically after a year, even if nothing is done. It should be clear on your insurance documentation if there is an auto-renewal option. It will ensure that you don’t become inadvertently unable to renew your insurance, and avoid scenarios such as being caught driving without a license or realizing your home has been damaged by flooding.
- It will not be as difficult to cancel. The new rules will make it easier to cancel the auto-renewal of some policies. You should consider all factors that could lead to your policy not renewing when it is due.
These changes apply to all insurance products, regardless of whether they are purchased from an insurer or broker.
It is still a good idea to compare prices to find out if there are any savings by purchasing elsewhere.
ABI, British Insurance Brokers’Association launched three years ago a program that aimed at improving the treatment of long-standing customers by insurers.
Insurers and brokers were asked to review their policies regarding motor and home customers that had been with them for at least five years.
A report on the initiative, published in July 2020, found there had been more than 8.5million pricing interventions across motor and home insurance, saving customers a total of £641million.
Individual firms reported an average saving per intervention ranging between £40 and £150.
James Dalton is ABI’s general insurance policy director. He stated: “We support these reforms and we are happy that the FCA has taken action to implement them across both the motor and home insurance markets.
“While the FCA acknowledges the potential for price increases in some cases, customers who shop around frequently should still be able to get fair outcomes in the UK’s highly competitive motor and home insurance markets.
“These changes are significant and insurance companies will collaborate with the FCA in order to make sure that their customers have a smooth transition.”