New rules will stop car insurers from charging existing customers more for cover than new clients.
Millions of drivers are thought to be paying more than necessary for their insurance because they allow their policy to auto renew without shopping around. In many cases, the renewal quote is more expensive than the price than they paid previously and more than they would be charged as a new customer.
This so-called price walking or loyalty tax is thought to collectively cost UK drivers hundreds of millions of pounds each year.
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However, under new guidelines from the Financial Conduct Authority (FCA) insurers will no longer be allowed to charge a customer more to renew than they would pay as a new customer.
The FCA says the move will not only stop firms price walking but could also put an end to unsustainably low-priced deals which are used to lure in new clients.
The change, which comes into force in January 2022 will apply to car and home insurers and the FCA estimates it will save customers £4.2 billion over the next 10 years. At the same time, insurers will have to make it easier for customers to cancel automatic renewal on their policies.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “These measures will put an end to the very high prices paid by many loyal customers. Consumers can still benefit from shopping around or negotiating with their current provider – but won’t be charged more at renewal just for being an existing customer.
“We will be watching closely to see how the market develops in the future and to ensure firms continue to deliver fairer value to consumers.”
Gareth Shaw, Head of Money at Which?, said the changes were long overdue. He commented: “For far too long, insurance companies have employed sharp pricing tactics to lure in customers before hitting them with eye-watering price hikes and exorbitant premiums, so it is right that measures will finally be introduced to help put an end to these unfair practices.
“Greater transparency is still needed on what factors insurance firms are using to set prices and the FCA should carry out further work looking at whether there are other practices firms should be prohibited from using.”
Louise O’Shea, CEO at Confused.com said the move was a “watershed moment” for the industry. She added: “Things are about to get very competitive – insurers will be competing to win new business, and so there will be a better price out there for every customer.”