A new rule will be introduced by the Financial Conduct Authority (FCA) in the new year that aims to stop insurance firms from disadvantaging loyal customers in favour of new business.
Insurance providers often offer introductory rates to new customers to lure them in, but hike the price come renewal time. This practice is known as ‘price walking’ and means customers are effectively penalised for their loyalty to one company. The result is that to get the best rates, people need to shop around every year.
Naturally, insurers are still free to raise premiums if a customer’s risk level changes, for example because they had an accident that year.
The rule change was proposed in 2020, when the FCA invited feedback, and it will come into effect on 1 January 2022 with detail changes to the legal wording.
The FCA estimates the new regulations will save consumers £4.2bn over the next 10 years. A further benefit is that people will no longer need to change insurers every year in order to get the best deal.
Sheldon Mills, executive director, consumers and competition at the FCA, said: “Our interventions will make the insurance market fairer and make it work better. Insurers can no longer penalise consumers who stay with them. You can still shop around and negotiate a better deal, but you won't have to switch just to avoid being charged a loyalty premium.”
As well as banning the price walking, the FCA is also introducing rules that make it easier to cancel an insurance policy. One change is that insurers have to make it possible for customers to opt out of automatic renewals.