How big is the price we pay for loyalty on home and car insurance?
A radical shake-up in insurance has been proposed after years of consumers paying over the odds for home and motor insurance.
The Financial Conduct Authority has put forward proposals which would mean existing customers would pay no more for renewing their insurance than new customers signing up to the insurer.
For example, if the customer bought the policy online, they would be charged the same price as a new customer buying online.
It would prevent firms from gradually increasing the renewal price to consumers over time, known as “price walking”. Only changes to the customer’s risk would see an increase in price.
It comes after research found loyal customers have often paid more than new consumers when joining an insurer.
On average, new customers pay £285 for motor insurance while customers who have been with their provider for more than five years pay £370, according to analysis by the FCA based on typical risk.
Ten million policies across home and motor insurance are held by people who have been with their provider for five years or more.
The proposals could save consumers £3.7 billion over 10 years, the FCA has said.
How big are the loyalty penalties paid by home and motor insurance customers?
According to the FCA, 10 million policies across home and motor insurance are held by people who have been with their provider for at least five years.
The FCA previously identified six million policyholders paying high or very high margins in 2018.
The differences in prices paid for a typical risk, on average are:
–£285 to £370
–£130 to £238
–£165 to £287
–£56 to £138
The city regulator analysed prices paid by new customers and those who have been with the same provider for more than five years.
The FCA said that firms use complex techniques to identify customers who are more likely to renew with them.
They then increase prices to these customers at renewal each year, resulting in some consumers paying very high prices.
The regulator said many of these consumers are unaware of this, mistakenly believing that their provider is offering them a competitive price at renewal.
In addition, some firms use practices that can discourage consumers from shopping around, including by making it more difficult to cancel automatic renewal.
And just because consumers often switch, it does not mean they will always get the best price.
Even people who switch regularly are not always offered firms’ lowest prices, the FCA said.
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.”