CUSTOMERS renewing their motor insurance policy should pay no more than they would if they were new to their provider.
The Financial Conduct Authority is concerned that the motor and home insurance markets are not working well for consumers and is setting out proposed remedies.
It has published the final report of its market study into the pricing of home and motor insurance and is proposing significant reforms through measures which seek to enhance competition, ensure consumers receive fair value, and increase trust.
The FCA is proposing that customers buying a policy online should 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.
Firms use complex and opaque pricing practices that allow them to raise prices for consumers that renew with them year on year. While some people shop around for a deal, many others are losing out for being loyal.
Firms target price increases on consumers who are less likely to switch and use practices that make it harder for people to leave. At the same time, firms do not always offer regular switchers their lowest prices. The FCA identified 6 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. Some of this is due to harmful pricing practices, which the FCA’s proposals aim to tackle.
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, lead to lower costs for supplying insurance, and ultimately lower prices. The FCA estimates that its proposals will save consumers £3.7 billion over 10 years.
The FCA is seeking views on its proposals by 25 January 2021. It will consider all the feedback and intends to publish a Policy Statement and new rules next year along with its response to the consultation feedback.