Loyalty STILL doesn’t pay – so keep shopping around for the best deals on your insurance

Twenty months into a new regime for the pricing of home and motor insurance, it is hard to find anyone — other than the regulator — who believes it has been a runaway success story.

Designed to end the despicable practice of overcharging existing customers for insurance that new policyholders can get more cheaply, the jury is still out on whether the new rules from the Financial Conduct Authority (FCA) have made a ha’porth of difference.

As far as consumers are concerned, all they know for a fact is that their renewal premium is significantly higher than what they were paying. In many cases, 30, 50, even 100 per cent higher.

Staying loyal still does not pay, irrespective of whether their exorbitant renewal premium is the same as a new customer would pay for identical cover.

Shopping around still remains the best way to obtain a more affordable deal.

Price hikes: The new regime, brought in twenty months ago, to stop existing customers being overcharged compared to new ones has failed to top the coast of renewal premiums soaring

However, there are encouraging signs that the FCA is beginning to turn the proverbial screw on insurers. 

Although the regulator can do little to stop insurers from passing on rising claims costs to customers by way of more expensive premiums, it is beginning to stamp down on companies that continue to penalise loyal customers.

Earlier this month, the FCA confirmed it had found Direct Line Group guilty of charging some existing home and motor customers more for their renewal than they would have paid as a new customer. 

Under a ‘voluntary’ agreement struck between them, Direct Line Group — which also owns big insurance brands such as Churchill (the nodding dog) and Privilege — said it would pay £30 million to those customers who were charged more for cover than they should have been.

‘An error in our implementation of these rules has meant that our calculation of the equivalent new business price for some customers failed to comply with the regulation,’ the insurer said when announcing the details to the stock market.

Given the announcement was made on the first day of this month — and the new rules have been in force since the beginning of last year — you could wonder with justification why it has taken so long for the regulator to act.

Yet, in the regulator’s defence (and I am no defender of the FCA), the new pricing regime has taken a while to bed down. 

Although it has received a swathe of market intelligence from consumers and the Press about potential rule breaches, the well that the regulator has mainly drawn from is the detailed annual returns provided by the insurance companies in April this year.

From these returns, detailing the prices that individual insurers have been charging existing and new customers throughout 2022, the FCA can determine whether an insurer has been a consistent and significant breaker of the new rules.

That provided the ammunition for the FCA to start speaking to Direct Line — and which culminated in the insurer agreeing to the £30 million deal to compensate disadvantaged customers. 

Although the regulator had within its armoury the right to take enforcement action against Direct Line — possibly resulting in the issuing of a multi-million-pound fine and being suspended from doing new business — it chose a quicker course of action.

Compensation: Direct Line Group –has said it will pay £30m to those customers who were charged more for cover than they should have been

By striking a voluntary agreement with the insurer (rather than getting bogged down in messy and protracted enforcement action), it meant the FCA could get an early message (in a regulator’s time horizon) out to the insurance industry and the wider general public that it would not be tolerating any rule breaking.

While the regulator is keeping its cards close to its chest, it is understood that its ongoing examination of the annual returns of some other big insurers will trigger similar voluntary agreements being struck — and compensation being paid to disadvantaged policyholders.

Details of these agreements are likely to be published in the coming weeks and months.

If this does happen, it will demonstrate that the regulator is not as useless as some people think. It is also believed that the regulator’s work has revealed other areas of potential policyholder detriment.

For example, under the current pricing rules, existing policyholders can sometimes get cheaper (but identical) cover from their insurer at renewal by buying via a different sales channel as a new customer — the internet instead of the telephone.

Although this differential pricing across the various sales channels of an insurer is currently permitted under the new rules, many customers say it is at odds with the objectives of the current regulations. 

The FCA appears not to agree, but it is concerned as to whether insurers are applying such differential pricing fairly — and not using it as a tool to bludgeon customers towards policies that are cheaper for them to administer.

Two years ago, the FCA confidently boasted that its measures to extinguish penalties for being loyal customers would save consumers £4.2 billion in the first ten years.

While the regulator can now claim the insurance market is a little bit fairer for its intervention, any talk of ‘savings’ is for the fairies.

Insurance premium inflation is currently rampant and will not come down until next spring at the earliest.

It has eliminated the savings the FCA promised.

Insurers are determined to rebuild profits — and that can only come at the expense of policyholders through more expensive premiums and a tougher stance on claims (Direct Line has also incurred the wrath of the regulator on this because of underpaying some customers who had their cars written off).

Of course, the regulator must continue hauling rule breakers over the coals. If I were a betting man, I’d put a tenner on the name of the next insurer to be told to pay compensation (let me know who you think it is and I will reciprocate).

But for all the FCA’s meddling, the insurance market remains as dysfunctional as it has ever been. Customer loyalty counts for absolutely nothing.

Shopping around is the only way to play the market.

[email protected]

This post first appeared on Dailymail.co.uk