"We are consulting on a radical package that would ensure firms cannot charge renewing customers more than new customers in future"
The FCA is proposing "significant reform" of the general insurance market to enhance competition, ensure consumers will receive fair value, and increase trust in the market.
The FCA is proposing that when a customer renews their home or motor insurance policy, they pay no more than they would if they were new to their provider 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 (known as 'price walking') other than in line with changes in customers’ risk. For existing consumers, their renewal price would be no higher than the equivalent new business price.
The FCA identified that six million policyholders were paying high or very high margins in 2018. If they paid the average for their risk, they would have saved £1.2 billion.
The FCA is also consulting on other new measures to further boost competition and deliver fair value to all insurance customers including:
- Product governance rules requiring firms to consider how they offer fair value to all insurance customers over the longer term.
- Requirements on firms to report certain data sets to the FCA so that it can check the rules are being followed.
- Making it simpler to stop automatic renewal across all general insurance products.
In the long-term, the proposed remedies are designed to improve competition which the FCA says should lead to lower costs for supplying insurance and ultimately lower the prices paid by consumers on average. The FCA estimates that its proposals will save consumers £3.7 billion over 10 years.
The FCA is seeking views on its proposals by 25th January 2021.
Christopher Woolard, interim chief executive of the FCA, commented: "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."