What is the regulator proposing?
The FCA says its study of the insurance market shows that a customer with typical risk who has been with their insurance provider for more than five years pays an average of £85 extra for car insurance and £108 extra for home insurance compared to a new customer. Some 10 million car and home insurance policies are held by people who have been with their provider for five years or more.
The regulator also found some firms target price increases on customers who are less likely to switch, and can use practices that make it harder to leave.
Here are the key reforms proposed by the FCA:
- Car and home insurers would need to offer existing customers a renewal price that’s no higher than they would offer a new customer using the same sales channel. If a firm wants to increase prices for its existing customers at renewal, it will also need to increase prices for its new customers.
The FCA believes this will help tackle high prices for existing customers, as firms could lose business if they also push up prices for new customers.
Firms would also need to report certain data on their pricing practices to the FCA to ensure the rules are being followed. This would include information about differences in price for new and existing customers.
- All general insurance providers would need to follow “product governance rules” requiring them to consider how they offer fair value to customers. This proposal doesn’t just apply to car and home insurance but other types of general insurance too, such as life and travel insurance. Firms should consider how their products’ price and design offer value, both when it’s first offered to the customer and over the longer term if a customer renews.
- All general insurance providers would face measures to stop them using auto-renewals as a barrier to stop customers switching. Firms would need to explain to customers whether their policy is set to auto-renew and what this means for them, and make it easier for customers to stop their contract auto-renewing.
As well as the proposals, the regulator has also published final rules requiring all general insurance providers to publish certain data on the frequencies of their claims and their acceptance rates, average claims payouts and complaints.
What does the FCA say?
Christopher Woolard, interim chief executive of the FCA, said: “We are consulting on a radical package that would ensure firms cannot charge renewing customers more than new customers in future, and put an end to the very high prices paid by some long-standing customers. The package would also ensure that firms focus on providing fair value to all their customers. We welcome feedback on the proposals.”