Happy New Year! If you are just about to renew your home or car insurance, then this year your premium may be lower (or higher) than you'd been expecting. The prices charged for home and motor
insurance are changing this year because of new rules that came into effect on
1st January to protect loyal and vulnerable consumers. These new regulations have
been set by the Financial Conduct Authority (FCA). The FCA claims that the new
system will save loyal customers around £4.2 billion over the next 10 years.
Anyone renewing their policy will now pay
no more than they would have done if they had been a new customer. That might
sound like a good thing for customers, but there is a catch. Prices are likely
to go up for people who regularly change their insurance company, for example
by using price comparison sites.
So the result of these changes will
mean that customers who always remain loyal to the same company will almost
certainly pay less than before, but customers who regularly switch supplier
will find it harder to get a better deal than what they already have.
Why have these changes been made?
The new policy is designed to stop the
practice of ‘price walking’, which is where a loyal customer is charged a
higher amount year-after-year when they stay with the same insurance company (despite
the fact that their risk level is unchanged). So people who switch suppliers
every year get the best deals and loyal customers end up paying more.
Surprisingly, ‘price walking’ is more
of a problem than might be expected. A massive 10 million home and motor
insurance policies are held by people who have been with the same provider for
five years or more. So it’s a good bet that many of these people have been
victims of ‘price walking’.
Matthew Upton, director of policy at
Citizens Advice said: "Rip-off renewal prices have seen consumers paying
over the odds for far too long. No longer can you be exploited just for staying
loyal. We now need to see urgent action to protect consumers in the other
markets.”
How will things change in practice?
Customers will still be able to shop
around for the best deals. However, premiums charged to renewing home and motor
insurance customers cannot be greater than the price that is charged to an
equivalent new customer for the equivalent policy.
Individual premiums can still be set
at different levels depending on factors such as a customer's age (but NOT
gender), type of vehicle, driving record, claims history, etc. There will also
be the opportunity to lower premiums through ‘no claims discounts’ exactly as
before.
James Dalton, from the Association of British Insurers said: "While the FCA recognises that these changes could
lead to price rises for some who shop around regularly, all customers should
get fairer outcomes in the UK's competitive home and motor insurance
markets."
The view of The Customer Service Blog
Darren Bugg, Editor of The Customer
Service Blog, said: “The new system will make things fairer for people who aren’t
used to switching their insurance provider every year. For example, some elderly
people and people unable to access the internet will benefit from these changes.
But in reality, the vast majority of people who will benefit from the changes
are the people who are too busy (or too lazy) to bother shopping around for a
better price.”
He continued: “It will be interesting
to see what effect this has on price comparison sites like Money Supermarket
and Compare the Market. Presumably there will be a lot less people bothering to
use these comparison sites since a lot customers will just accept their renewal
quote instead of looking for a better deal.”
“There is also the question of how
insurance companies will adapt their marketing strategies to fit the new rules.
Up to now, the marketing strategy of most insurance companies has been based
around offering a very good price to begin with, and then hoping to keep a
small percentage of their new customers when renewal becomes due. They will now
need to think of other ways to attract new customers, because in the future
they will find it much easier to retain existing customers, but much harder to
win new customers in the first place.”
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