(Alliance News) - Home and motor insurance customers in the UK should pay no more when renewing their policy than they would if they were new to their provider, under proposals by the City regulator.
It means that for existing consumers, their renewal price would be no higher than the equivalent new-business price.
The proposals from the Financial Conduct Authority would apply through the same sales channel.
For example, if the customer bought the 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 â€“ known as "price walking", other than in line with changes in a customer's risk.
Ten million policies across home and motor insurance are held by people who have been with their provider for five years or more.
New customers pay GBP285 for motor insurance while customers who have been with their provider for more than five years pay GBP370, according to analysis by the FCA based on typical risk.
The FCA previously identified six million policyholders were paying high or very high margins in 2018.
On Tuesday, it said that it estimates its proposals will save consumers GBP3.7 billion over 10 years and it will monitor their impact.
Christopher Woolard, interim chief executive of the FCA, said: "We are consulting on a radical package that would ensure firms cannot charge renewing customers more than new customers in future, and put an end to the very high prices paid by some long-standing customers.
"The package would also ensure that firms focus on providing fair value to all their customers.
"We welcome feedback on the proposals."
The FCA set out a package of proposed remedies to help ramp up competition between providers, as it published the final report of its market study into the pricing of home and motor insurance.
The regulator said it is concerned these markets are not working well for consumers.
The FCA is also consulting on other new measures to boost competition and deliver fair value to all insurance customers.
These include product governance rules requiring firms to consider how they offer fair value to all insurance customers over the longer term and requirements on firms to report certain data to the FCA, so that it can check the rules are being followed.
Firms use complex and opaque pricing practices that allow them to raise prices for consumers that renew with them year-on-year, the regulator said.
It is seeking views on its proposals by January 25 2021.
Dame Gillian Guy, chief executive of Citizens Advice, said: "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.
"We're especially happy to see it tackling price walking â€“ gradual year-on-year price increases â€“ and making companies automatically switch their customers to better deals.
"It's important to remember these are proposals and have an introduction date of 2022 which is a long way away. It is essential that the FCA confirm and implement these quickly to bring insurance customers' prices down by GBP370 million a year."
Huw Evans, director general of the Association of British Insurers, said: "The ABI agrees with the FCA that the household and motor insurance markets do not work as well as they should for all customers, and we continue to support the FCA's work to address this.
"Insurers and brokers have already begun to tackle the issue of excessive price differences between new and existing customers through an industry initiative that has seen over 8.5 million pricing interventions across home and motor insurance worth GBP641 million.
"It is vital that price comparison websites and insurance brokers are subject to the same level of supervision and monitoring by the FCA to ensure a balanced approach.
"We will consider carefully this package of proposals, so that we can engage with the FCA on the most effective measures possible. There are winners and losers in the way the market works currently, with those who switch insurance provider every year often ending up with lower prices. The FCA has confirmed that insurers have not made excessive profits."
By Vicky Shaw, PA Personal Finance Correspondent
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