UPDATE 2-UK insurers under more fire as watchdog proposes ban on "loyalty penalties"

(Adds Citizens Advice, background, shares)

By Huw Jones and Carolyn Cohn

LONDON, Sept 22 (Reuters) - Britain's Financial Conduct
Authority said on Tuesday it was proposing to stop insurers from
charging repeat car and home insurance customers more than new
clients.

Insurers' treatment of customers is under increasing
regulatory scrutiny, adding to pressures on their bottom lines
as they deal with costly claims caused by COVID-19.

The latest move comes just a week after the FCA successfully
brought a test case over business interruption insurance.

The regulator said that when a customer renews their home or
motor insurance policy they should pay no more than if they were
new to their provider through the same sales channel.

"The FCA estimates that its proposals will save consumers
3.7 billion pounds ($4.73 billion) over 10 years," said
Christopher Woolard, the FCA's interim chief executive.

It singled out "price walking" or complex pricing practices
that allow insurers to raise prices for consumers who renew
their car and home insurance policies year after year.

Consumer champion Citizens Advice said it was pleased the
FCA was taking "strong action to crack down on this systemic
scam".

The aim is to stop loyal customers being penalised, the FCA
said on Tuesday, identifying 6 million policyholders paying high
or very high margins in 2018, who could have saved 1.2 billion
pounds.

The FCA is also proposing rules requiring insurers to
consider how they offer fair value to customers over the longer
term, and to report data to the watchdog so that it can check
the new rules are being followed.

The proposals are being put out to public consultation until
January, with final rules published next year.

The FTSE 350 non-life insurance index fell
3.5%.

Insurers were also due by Tuesday to tell small business
customers the implications of last week's ruling that some of
them were wrong to reject tens of thousands of claims from firms
battered by the COVID-19 pandemic.
(Reporting by Huw Jones; Editing by Kirsten Donovan)