The biggest upheaval in the insurance industry in decades comes on New Years Day, when insurers will be banned from offering policyholders a higher price for renewing home or auto insurance than they would for. a new customer. This decision will improve the situation for some customers, but others should pay more.
What does it all mean?
After years of complaints that customers who regularly change insurers were paying significantly lower premiums than those who renewed automatically, the Financial Conduct Authority (FCA) said both groups of customers should now be offered the same price.
The FCA had found evidence that insurers attracted new customers with artificially low prices, then increased premiums over the following years – a practice known in the art as “price walking.” Insurers have also been found to cynically target customers they believe are less likely to change in the future. This decision aims to put an end to the two-tier insurance market that has developed as a result.
How will it work?
If the regulations are enforced as intended, an auto or home insurance customer receiving their renewal notice at the end of the year will be billed the same premium as if they requested to switch to that company from a competing insurer. Until now, insurers have offered generous discounts in the first year – often at cost or below – to entice customers in the hope that they would be able to increase their premiums in subsequent years.
However, it is a little more complicated than it seems at first glance. Insurers must demonstrate, overall, that they are billing new and existing customers who obtain insurance through the same “channel” at the same price. In effect, this means that insurers can still charge different rates for customers who use different price comparison sites (channels), but they cannot favor new customers over existing customers.
What does this mean for the prices?
The move appears to be bad news for households that change home and auto insurers every year in search of the lowest premiums for new customers. Nothing prevented people from switching providers each year to take advantage of the discounted offers – and millions of people have done so. This group will no doubt end up paying more each year to insure their home and car because those discounts will no longer be there. Conversely, the FCA has said it expects loyal customers who automatically renew their policies to save £ 120 a year each.
Martin Lewis, the founder of the MoneySavingExpert website and one of those who helped turn UK consumers into a nation of switches, said: Rates will be closer to the middle as happened in 2012, when insurers have been banned from gender price discrimination. This means that the savings resulting from the change are likely to decrease relatively.
“We still don’t know how exactly that will work, but switch prices will most likely be relatively higher for January. “
Overall, insurance prices will continue to rise (and sometimes fall as happened during the pandemic), but they should move the same for all customers – rather than those that change regularly. .
Will it still be worth doing a price comparison on renewal?
Yes and that is still the best advice. Insurers tend to target different segments of the market, and some may still want to attract you as a customer and will quote accordingly. The big savings from switching products will probably be a thing of the past, but there will always be savings to be made. Expect insurers to continue offering deals through price comparison websites like Moneysupermarket, ComparetheMarket, etc. New entrants will always offer attractive prices to attract customers.
It should be noted that the price walk was particularly prevalent in the home insurance market where renewal contracts were often charged double or even triple what they would have paid as a new customer of the same company. .
Anyone who has not traded home insurance in recent years is advised to do a price comparison when renewing it. Guardian Money is regularly contacted by people who are shocked to find out what their elderly friends and relatives have paid for their home insurance. Households found themselves paying almost £ 1,000 a year for coverage that could be purchased elsewhere, or even from the same provider, for £ 250.