New home and car insurance rules came into force this week on the 1st January which aim to put an end to the ‘loyalty penalty’, where existing customers are expected to pay more than new customers.
According to the Financial Conduct Authority the new car and home insurance pricing measures, known as the General Insurance Pricing Practices, could save consumers £4 billion over 10 years.
‘Price walking’ or the ‘loyalty penalty’ is a practice where insurance prices are bumped up each year when existing customers renew and don’t make changes to their policy. However, customers who switch to a new provider are able to benefit from cheaper deals at the expense of loyal customers.
If you’ve ever opted to renew your insurance, rather than scour the comparison websites for the best home insurance deal you have likely felt the sting of this penalty. According to the FCA home insurance customers, (with combined buildings and contents cover), who stick with their provider for over five years pay £287 – an increase of over 40%, compared with an average of £165 a year.
The financial regulatory body says that the new rules mean that a customer who’s been with the same insurer for over five years could expect to see an ‘average’ annual saving of £34 on contents cover, £41 for buildings cover, and £62 on a combined buildings and contents policy.
What are the new home and car insurance rules?
The new rules mean that insurers must offer the same prices to new and existing customers. Instead of luring customers in with cheaper deals, and slapping them with expensive renewal prices. The renewal prices will match what is being offered to new customers.
Another issue the new rules will address is the ease of cancelling home insurance. Insurance companies are now required to make cancelling insurance auto-renewal easier.
For example, companies can no longer insist that you cancel via the phone, they need to make other options, such as cancelling online available.
‘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,’ says Sheldon Mills, Executive Director, Consumers and Competition at the FCA.
‘We are keeping a close eye on how insurers respond to our new rules, to ensure that the benefits of a better insurance market are delivered to consumers.’
How will the new rules affect insurance prices?
So how much will home insurance cost with the new measures? The new rules mean renewal prices will become cheaper as they fall in line with what new customers are offered. However, new customer deals could go up to make up for the loss of the price walking auto-renewals.