Business Insurance

FCA announces new measures to help prevent customer loyalty being penalized

Coming into effect on 1 January 2022, the FCA introduced a "package of remedies" aimed at reducing the amount loyal customers spend on their insurance each year. This article will go through exactly what the changes mean for the UK's insurance customers.

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The Financial Conduct Authority confirms new measures to protect home and motor insurance customers from loyalty penalties.

In a move designed to protect the UK’s home and motor insurance customers, the FCA have announced a new set of regulations focused around preventing existing customers paying more for their insurance coverage than a new customer would.

In a 2018 market study, it was estimated that 6 million loyal customers who allowed their insurance policies to auto-renew spent roughly £1.2 billion more than required—money that consumers could have saved had they switched providers.

The effect of this ‘price walking’ is more severe than many consumers realise. It’s estimated that a home insurance customer who paid £130 for their first year of cover would end up paying £238 by their fifth year of cover with the same insurer.

FCA Executive Director Sheldon Mills commented ”‘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.”

On top of these insurance pricing reforms, the FCA is additionally bringing in new regulations to help protect consumers and bring more transparency to the often murky waters of the insurance market:

  • Easier cancellations of automatic renewals
  • Stricter requirements on offering customers a fair price
  • Additional reporting to the FCA to allow better market supervision

While the moves are a win for UK consumers, it may spell the end of especially low ‘welcome deals’, and will inevitably see insurers re-evaluate how they incentivise new customers to join them through discount bonuses and welcome gifts. A spokesperson at the Association of British Insurers admitted it was probable that insurers would “no longer be able to offer unsustainably low-priced deals to some customers.”

However, it is worth keeping in mind that while these welcome offers were often very generous, insurers eventually made their money back (and more) through gradual price increases, hoping customers wouldn't realise they could save by looking elsewhere.

One of the key drivers in the changes, a 2018 super-complaint by Citizens Advice, also pushed for changes in the markets for savings accounts, mortgages, mobile phone contracts and broadband, and noted that vulnerable sections of society, such as low-income households and the elderly, were most at risk of being a victim of annual price increases.

How much should I pay for my home insurance?

NimbleFins research into the costs of insuring a 3-bedroom terraced house with a rebuild cost of £200,000 put the average cost for basic home cover at £240 per year.

How much should I pay for my car insurance?

NimbleFins research put the average cost to insure a Ford Fiesta, the UK’s most popular vehicle (by registrations) in both 2019 and 2020, at £575 annually.

How to avoid price walking

  • Don’t be afraid to shop around, even if you’re happy with your current insurance provider—receiving a lower quote from elsewhere offers leverage with your existing provider if you feel you’re being overcharged.
  • Gather quotes from multiple sources. While aggregators are a popular option, each site has a different set of insurers they partner with, so try a couple of different ones before making your decision. Keep in mind that many insurers also save their best deals for customers shopping directly, so take a look at a few websites and see what’s on offer.
  • When it comes to mobile phones, paying off your handset as part of your contract will usually account for the majority of your monthly cost. If you can, look for SIM-only deals to avoid being overcharged.
Luke Masters

Prior to NimbleFins, Luke studied economics at Brunel University and worked at FreshMinds, Investigo and BMW. His work in data analytics, pricing, strategy and business development now help him write business insurance content to support SMEs. Read more on LinkedIn.

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