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(Alliance News) - The UK's financial services regulator on Friday set out measures to stop motor and home insurers from penalising customers for their loyalty.
The remedies address issues identified in the Financial Conduct Authority's September market study, which showed that millions of home and motor insurance customers lose out if they renew repeatedly with their current providers.
The FCA highlighted the practice of "price walking", when insurers increase prices for existing customers each year at renewal. This means consumers have to shop around and switch each year to avoid paying higher prices for being loyal.
"It also distorts the way the market works for everyone. Many firms offer below-cost prices to attract new customers. They also use sophisticated processes to target the best deals at customers who they think will not switch in the future and will therefore pay more," the FCA said.
Putting a stop to "price walking", by requiring insurers to offer renewing customers a price no higher than they would pay as someone new, is likely to entail the end of some "unsustainably" low-priced deals, the FCA said. However, the regulator estimates that the measures will save consumers GBP4.2 billion over 10 years.
Alongside rules on pricing, the FCA is also making it easier for consumers to cancel the automatic renewal of their policy and requiring insurance firms to report data so the FCA can supervise the market more effectively.
The pricing, auto-renewal and data reporting remedies come into effect at the start of 2022.
"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," said Sheldon Mills, executive director for Consumers & Competition at the FCA.
"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."
Shares in London-listed general insurers were higher on Friday. Direct Line Insurance Group PLC was up 3.1%, Admiral Group PLC up 1.4% and Sabre Insurance Group PLC up 1.4%. RSA Insurance Group Ltd, which is being bought out by Intact Financial Corp and Tryg AS in a deal expected to complete at the start of June, was up just 0.1%.
By Lucy Heming;Â lucyheming@alliancenews.com
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