Insurance Premiums Rules Change
New rules will stop car insurance companies from overcharging loyal customers.
The new legislation will ban car insurance companies from charging loyal customers higher rates. The rules will also stop companies from offering cheaper policy incentives to new customers. Many motorists don’t tend to shop around for a better deal when renewing their insurance policy. This has led to some insurance companies charging loyal customers more and offering lower prices to new customers.
FCA Pricing Study
A study from the Financial Conduct Authority (FCA) in 2018 found that many policyholders are overpaying. The study found that around 6 million policyholders were paying ‘high or very high’ margins on their policies. This lead to a collective overpayment of £1.2 billion. The study also found that 10 million customers hold insurance policies for 5 years or more with the same provider.
When Will It Come Into Effect?
The reform from the Financial Conduct Authority came into action at the start of the new year. Customers with existing policies will now pay the same premium as if they were are a new customer. The insurance companies are then banned from increasing the renewal price. This practice is known as ‘price walking’ is now illegal. But insurers can still increase the price of a customer’s policy depending on their risk profile.
What Are The Advantages and Disadvantages?
The FCA say this change aims to make sure all consumers pay fair prices for their policies. They estimate that this reform will save £3.7 billion in ‘insurance loyalty premiums’ over the next 10 years.
The downside to this is that car owners will no longer be able to snap up a good deal. Insurance providers will increase prices across the board to make back the revenue they will lose from this new legislation. Policyholders who are looking for the best deal when renewing might not get as good a deal as they could before.
40% of drivers will face higher premiums when they renew than they did before. But the long term saving will still apply if they stick to that provider.
Comment
FCA’s executive director for consumers and competition, Sheldon Mills said:
“Our interventions will make the insurance market fairer and make it work better. Insurers can no longer penalise consumers who stay with them.”
Useful Links
Official guidance – https://www.fca.org.uk/news/press-releases/fca-confirms-measures-protect-customers-loyalty-penalty-home-motor-insurance-markets
Insurance Premiums Rules Change
