Millions of people should enjoy cheaper insurance after the City regulator announced measures to tackle the problem of companies bumping up the premiums of loyal policyholders.
The rule change will mean that all renewal letters relating to motor, home, medical, travel and pet insurance will have to clearly flag up the amount the customer paid the previous year alongside their quote for the coming 12 months.
This should make it easier for people to detect whether they are being overcharged, as they will be able to see at a glance whether their premium has gone up, and by how much.
The Financial Conduct Authority (FCA) said the measures would benefit the public by up to £103m a year, and described this as “a transfer from firms’ profits” into consumers’ pockets.
The regulator said it was taking action to address concerns that some consumers who stayed with the same insurer ended up paying higher prices. In recent years some insurers have been accused of taking advantage of customers by repeatedly hiking the premiums of those who allow their cover to be renewed automatically.
When the FCA tested out different scenarios, it found that including the previous year’s premium in renewal letters had the greatest impact when the quote was higher, prompting up to 18% more people to either switch to a cheaper provider or negotiate a lower premium.
The FCA said: “The information must be clearly shown and allow comparison with the quoted renewal premium.”
It suggested a form of wording for the letters that would leave people in little doubt that they were being asked to pay more: “Your renewal quote for this year is: £200. Last year’s premium was: £150. This is £50 more than last year. Remember: Check your cover. Shop around for the best deal.”
The regulator is also proposing extra wording for people who have already renewed a product at least four times, meaning they have been a customer for five years or more. These consumers would be provided with the following statement: “You have been with us for over five years. You may be able to save money if you shop around.”
The FCA is seeking feedback on its proposals by 4 March 2016, and assuming they go ahead as planned, they are expected to come into force within 12 to 18 months.
At the moment, a few companies, including Axa, do disclose the previous year’s premium, but most do not. At the moment, some customers who receive a renewal letter will dig out last year’s documents in order to remind themselves how much they paid, but others will not.
The FCA estimated the ongoing benefits to consumers in the form of reductions to premiums to be between £64m and 103m a year.
The planned measures were welcomed by consumer groups. Richard Lloyd, executive director of Which?, said: “This simple change should help people save money by prompting them to shop around or haggle for a better deal with their current insurer.”
Meanwhile, George Osborne has welcomed Aviva’s response to his plans – announced in the autumn statement on 25 November – to ban cash payouts for whiplash claims, which the chancellor said should cut car insurance bills by as much as £50. Aviva said it would pass on “100% of the savings” from this initiative to its customers.
