"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."
The FCA has implemented a package of remedies to improve competition and protect home and motor insurance customers from loyalty penalties.
This includes new rules so that renewal quotes are not more expensive than they would be for new customers.
These measures address the issues identified in the FCA’s September 2020 market study, which found that millions of customers lose out if they renew repeatedly with their current providers. In 2018, 6 million loyal policy holders would have saved £1.2 billion had they paid the average price for their actual risk.
Many firms increase prices for existing customers each year at renewal, known as price walking, meaning consumers have to shop around and switch every year to avoid paying higher prices for being loyal.
The FCA says many firms are also offering below-cost prices to attract new customers who they think will not switch in the future and will therefore pay more.
Under the new rules, insurers will be required to offer renewing customers a price that is no higher than they would pay as a new customer. Although firms are unlikely to offer unsustainably low-priced deals to some customers, the FCA estimates that these measures will save consumers £4.2 billion over 10 years.
The new rules will also give give consumers easier methods of cancelling the automatic renewal of their policy, require insurance firms to do more to consider how they offer fair value to their customers, and require firms to report data to the FCA so that it can supervise the market more effectively.
The pricing, auto-renewal and data reporting remedies come into effect on 1st January 2022. The rules on systems and controls, product governance and premium finance take effect from the end of September 2021.
Sheldon Mills, executive director of consumers and competition at the FCA, commented: "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.
"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."