Under new proposals by the Financial Conduct Authority (FCA), home and motor insurance customers should pay no more when renewing their policy than they would if they were new to their provider.
It means that for existing consumers, their renewal price would be no higher than the equivalent new-business price. However, with firms being unable to charge renewing customers more than new customers in future under the plans, it could mean the disappearance of some ultra-cheap deals from the market.
The proposals would apply through the same sales channel. For example, if a customer buys a policy online, they would be charged the same price as a new customer buying online.
Firms would be free to set new-business prices, but they would be prevented from gradually increasing the renewal price to consumers over time – known as “price walking”, other than in line with changes in a customer’s risk.
The regulator stopped short of banning auto-renewals, which could have potentially left some customers without cover.
An FCA spokesperson said: “It should be as easy to be able to cancel a renewal as it is frankly to sign up to one, that’s probably a good rule of thumb.”
Ten million policies across home and motor insurance are held by people who have been with their provider for five years or more — with six million policyholders identified as paying high or very high margins in 2018.
The FCA estimates its proposals will save consumers £3.7 billion over 10 years and it plans to monitor the impact. The consultation will end on January 25, 2021, and new rules could come into force from Autumn 2021.
Dame Gillian Guy, chief executive of Citizens Advice, commented: “It’s nearly two years since we submitted a super-complaint on the loyalty penalty and we’re pleased to see the FCA is proposing strong action to crack down on this systematic scam.”
The FCA review coincides with reports that insurance companies saved millions during lockdown yet failed to pass savings on. As cars stood idle in driveways and roads were largely deserted during the UK’s Covid-19 lockdown, the number of claims made on motor insurance policies fell sharply. Industry experts have commented that lower claims haven’t resulted in lower car insurance premiums across the board.
Younger drivers save up to £500 by adding an experienced driver
Car insurance customers can save almost £500 on their annual policy cover by simply adding an experienced driver to their agreement, according to insurance experts. Policy prices fall because insurers believe that the car is not always being used by the least experienced driver which reduces the vehicle's overall perceived risk.
A spokesman for Money.co.uk said costs could "tumble” by simply adding an experienced second driver to an agreement: “While you may think adding more drivers to a policy would make it more expensive, having an experienced driver with no claims or convictions as a named driver on your policy, could see your premium tumble, especially for new or young drivers.
“Money.co.uk discovered drivers could save up to £476 by adding an experienced driver, such as a parent, to their policy as a named driver.”
Analysis from MoneySuperMarket revealed that adding a named driver on a policy can reduce a young person’s cost of cover by up to 32 percent. Research showed that drivers aged between 17 and 24 benefit most from the addition of an experienced driver to the policy.