HOME and car insurance companies could be banned from charging customers more when they renew their policies.
The city watchdog argued that existing customers shouldn’t pay more for their insurance than a new customer.
Under the proposals from the Financial Conduct Authority (FCA), businesses would still be able to set prices for new customers.
But companies wouldn’t be allowed to hike prices for new customers unless their risk level increases, for example, if a motorist has an accident.
The FCA believes the new measures would save motor insurance customers £62 a year on average.
For home insurance customers who’ve renewed five times or more, the proposals could see premiums drop by £55 for buildings and contents insurance.
How to compare home and car insurance
PAYING your car and home insurance can be a stressful time.
It’s a legal requirement to have car insurance and going without it could land you with a £300 fine, six penalty points on your licence and even a criminal conviction.
Home insurance, meanwhile, is often a requirement to get a mortgage.
But before you automatically renew with your current provider, make sure you compare prices to ensure you’re on the best deal.
There are dozens of reputable websites where you can check prices, including Compare the Market and Go Compare.
Once you’re done, the websites will then show you the quotes you can get some different providers.
If you find a better price, go back to your insurer and tell them what’s being offered elsewhere.
While no means a guarantee way to lower the price they’re offering you, haggling doesn’t cost a penny and can prove successful.
If they can’t lower their price, then you can leave them and go with the cheaper deal.
Also remember to check insurance prices directly with Aviva and Direct Line as these insurers don’t feature on comparison websites.
Once you’ve found your perfect deal, do a check on Quidco and TopCashback to see if you can also earn cashback on top.
It comes after the FCA found that 6million policyholders could save a collective £1.2billion a year if they paid the average premium for their risk.
This includes one in three people who are potentially vulnerable, for example because they are less financially savvy.
The FCA said companies are more likely to increase prices for loyal customers who don’t switch, while offering discounts to new customers.
And when firms set a price, they include their expectations of whether a customer will switch or if they can get away with charging more.
In addition, companies were found to not offer existing customers their lowest prices.
We’ve asked if the FCA what the proposals mean for customers who are mid-way through their policy and we’ll update this article when we know more.
The FCA estimates that its proposals, which were first announced in October 2019, will save consumers £3.7billion over ten years.
Insurance companies now have until January 25, 2021, to get back to the FCA with any suggestions.
The watchdog plans on enforcing the new rules next year.
Separate research from MoneySupermarket, released in February this year, showed drivers could be paying up to £125 extra a year when they auto-renew.
How to avoid paying extra on your car insurance
PAYING your car insurance can be expensive but thankfully there are things you can do to manage costs.
James Daley of Fair Finance spoke to The Sun about how to deal with financial strain.
- Set up a savings account: If you budget correctly, setting up a savings account that you can top up throughout the year could be a great way to prepare for next year’s renewal date. Always shop around for a savings account with the best interest rate so you can get more for your money. You can use comparison site Compare the Market to look for the best account.
- Find an insurer that doesn’t charge: James highlighted the AvivaPlus for doing just this. Customers who take out a new quote with the insurer won’t play any interest for paying in monthly instalments. There’s also no annual contract, so you can leave at any point. However, this doesn’t mean that other insurers can’t offer you a better deal so always shop around for the best price.
- Purchase cards with 0% interest: There are loads of 0% purchase cards with no interest to pay, in some cases lasting over two years. These can be used to pay for the annual cost of your policy without the expensive interest being charged by insurance companies. However, you will need to pay off your debt by the end of the pre-agreed period, otherwise interest will be added. Always make sure you have the financial means to pay off the card in the timeframe you’ve agreed.
The FCA previously told The Sun that while its current report focuses on car and home insurance, it will take on board findings from other products such as travel and pet insurance.
FCA interim chief executive Christopher Woolard said the measure would “put an end to the very high prices paid by some long-standing customers”.
He added: “We are consulting on a radical package that would ensure firms cannot charge renewing customers more than new customers in future.
“The package would also ensure that firms focus on providing fair value to all their customers. We welcome feedback on the proposals.”
Dame Gillian Guy, chief executive of Citizens Advice, said: “We’re pleased to see the FCA is proposing strong action to crack down on this systematic scam.
“We’re especially happy to see it tackling price-walking – gradual year-on-year price increases – and making companies automatically switch their customers to better deals.
“It’s important to remember these are proposals and have an introduction date of late 2021 which is a long way away.”
Gareth Shaw, head of money at Which?, said: “The regulator is rightly proposing action to stop insurance firms from exploiting their loyal customers with sharp pricing practices.
“Our research has found that existing insurance customers are often punished with vastly overpriced premiums when little has changed in the service they receive.”
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If your insurance policy is coming to an end, The Sun has a guide on how to find cheap car insurance.
British drivers could save themselves up to £100 by taking out a policy in February rather than December.
Thousands of drivers could also be unknowingly driving without car insurance after taking out a policy with fake providers.