Car insurance companies will be stopped from charging customers who renew their deals more than new customers under “radical” new proposals.
The Financial Conduct Authority has proposed the new rules following the publication of a market study report into the pricing of home and motor insurance. The FCA estimates its new proposed new rules could save consumers £3.7 billion over 10 years.
In the report, the FCA identified six million customers who it said were paying high margins in 2018, and who would together have saved £1.2 billion if they were instead charged the average figure for their risk level.
According to the FCA, 10 million home and motor insurance policies are held by customers who have been with the same provider for more than five years. It found that those customers paid an average of £370 for motor insurance, compared with £285 for new customers.
As a result, the FCA has proposed that a customer who renews a home or motor insurance policy should be charged no more than they would if they were a new customer using the same sales channel. While firms would be free to set their own prices, they would be prevented from gradually increasing renewal prices, other than when a customer’s ‘risk’ changes.
The FCA has also proposed a series of other reforms, including making it simpler to stop automatic insurance renewals, and a requirement for insurance firms to report data to the FCA so it can check rules are being enforced.
Christopher Woolard, the FCA’s interim boss, said the “radical package” 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 FCA has invited feedback on the proposals. When that process is completed next January, it will publish a policy statement setting out the new rules.