HOME and motor insurers are to be banned from charging existing customers more than new ones for policies, saving Brits billions of pounds.
The new rules aim to tackle the “loyalty penalty”, which sees firms offer cheaper deals to new customers and hiking prices for existing policyholders.
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The new rules will kick in from the end of September this year.
The finance watchdog, the Financial Conduct Authority (FCA), estimates Brits could save £4.2billion over 10 years because of the shake-up.
Many firms increase prices for existing customers each year, which is known as “price walking”.
A survey by the watchdog revealed millions of home and motor insurance customers would lose out if they renewed with their current providers.
It revealed that six million Brits lost out on £1.2billion because they weren’t being charged the average price for their renewed policy.
But the FCA’s crackdown means firms will have to offer existing customers a price that is no higher than what they would be paying as a new one.
It could also mean insurers will therefore no longer offer “unsustainably low-priced deals” to new customers, the FCA said.
Insurers will also have to follow other new rules announced today too.
Firms will have to provide customers with easier ways of cancelling automatic policy renewals.
How to make sure you’re not being penalised for being loyal
THE best way to beat the loyalty premium is to check if you can switch and save.
These are some of the best websites to use to find a better deal on your provider. Remember though, if you are thinking about switching before your term is up then you could face an early exit fee.
They will also have to handover data to the FCA, so it can regulate whether companies are sticking to the new measures.
The new rules will roll out on January 1, 2022.
They were first outlined in plans set out by the FCA last year, but it announced in March that firms would have longer than the original September 2021 deadline to implement the changes.
FCA consumers and competition executive director Sheldon Mills 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.”
Citizens Advice director of policy Matthew Upton said the charity was please to see the FCA “setting the bar so high” to stamp out “this systematic scam”.
He said: “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.”
Confused.com chief executive Louise O’Shea said it was a “watershed moment” for customers and the insurance industry.
“These new reforms will see an end to customers being priced unfairly when it comes to renewal,” she said.
She added it was “great news” that the “lengthy and stressful” process of cancelling automatic renewals for policies will be stopped.
It comes as homeowners are facing higher insurance premiums than at any time in the past seven years due to the Covid crisis.
Data from MoneySupermarket.com revealed Brits were paying an average of £394.80 more in 2020 than they were the previous three years for combined home and contents insurance policies.
While car insurers faced pressure last year to refund motorists unable to use their cars during lockdown, paying for policies they didn’t need.
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