New rules are to be introduced to stop car and home insurers from imposing so-called loyalty penalties on customers, the financial watchdog has announced.
The Financial Conduct Authority (FCA) said it is cracking down on unscrupulous firms to end the practice where existing customers are offered quotes that are higher than new ones.
Regulators found last year that millions of customers were being unfairly charged higher prices, including an extra £1.2 billion in 2018 alone.
Many firms increase prices for existing customers each year at renewal – in a practice known as price walking.
The FCA said: “This means that consumers have to shop around and switch every year to avoid paying higher prices for being loyal.
“It also distorts the way the market works for everyone. Many firms offer below-cost prices to attract new customers.
“They also use sophisticated processes to target the best deals at customers who they think will not switch in the future and will therefore pay more.”
As a result of the changes, insurers will be required to offer renewing customers a price that is no higher than they would pay as a new customer.
The FCA admitted that the changes are likely to bring an end to unsustainably low-priced deals to some customers.
But officials said that, overall, consumers will save £4.2 billion over 10 years.
The watchdog added that the new rules will also make it easier for customers to cancel automatic renewal of their policy and require insurance firms to do more to consider how they offer fair value to their customers.
Insurers will also have to send data to the FCA so the regulator can monitor the market more effectively.
Sheldon Mills, executive director, consumers and competition at the FCA, said: “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.”
The new rules will come into effect from January 1 next year and the impact will be reviewed in a full evaluation in 2024.
