Insurance renewal 'loyalty tax' to be banned under new FCA proposals

Published 22 September 2020

Drivers renewing their car insurance should be offered the same deals as new customers, according to a new proposal from the Financial Conduct Authority (FCA).

The move will save drivers in the UK £3.7 billion over the next 10 years, says the FCA, after its investigation found that some insurers were charging existing customers more for car insurance.

The FCA's General Insurance Pricing Practices Market Study found that some firms are using complex algorithms to identify customers who are more likely to renew. These customers are then subject to price increases - a process that's been labelled as a 'loyalty tax' by the media and drivers.

In addition, some firms also use practices that discourage consumers from shopping around, including making it more difficult to cancel automatic renewal.

The FCA analysed the prices paid by new customers and those who have been with the same provider for more than five years. There was an £85 difference in prices, on average, with new customers paying £285 for motor insurance and customers who had been with their provider for more than five years paying £370.

Under the new FCA proposals, firms would be free to set prices for new customers, but they would be prevented from gradually increasing the renewal price to consumers over time for anything other than risk factors.

The financial authority says six million people are paying an average of £200 too much on premiums. The regulator's research into household and motor insurance found that more than one in 10 people were paying very high prices for their cover. One in three of them were vulnerable in some way, including those who are elderly or lower paid.

The FCA estimates that average prices will fall by £3.7 billion over the next 10 years as a result of the proposed pricing remedy -which will now go to consultation until late January and could come into force in 2021.

Commenting on today’s publication, Huw Evans, the Association of British Insurers director general, said: “The ABI agrees with the FCA that the household and motor insurance markets do not work as well as they should for all customers, and we continue to support the FCA’s work to address this.

“Insurers and brokers have already begun to tackle the issue of excessive price differences between new and existing customers through an industry initiative that has seen over 8.5 million pricing interventions across home and motor insurance worth £641 million.

“It is vital that price comparison websites and insurance brokers are subject to the same level of supervision and monitoring by the FCA to ensure a balanced approach.

”We will consider carefully this package of proposals so that we can engage with the FCA on the most effective measures possible. There are winners and losers in the way the market works currently with those who switch insurance provider every year often ending up with lower prices. The FCA has confirmed that insurers have not made excessive profits.”

Comments

Falkirk Bairn on 23 September 2020

My Aviva car policy went from £160 to £200 in 4 years. 2 months ago it jumped to £260 - no changes, no claims etc.

I walked - paying £194 with a £70 Amazon Voucher after 3 months - so a net £124.

Reply | Report as offensive | Link

Engineer Andy on 25 September 2020

My Aviva car policy went from £160 to £200 in 4 years. 2 months ago it jumped to £260 - no changes, no claims etc. I walked - paying £194 with a £70 Amazon Voucher after 3 months - so a net £124.

Same here with Esure, who've been gradually putting the price up for the last few years. It's only this year that a credible (a rival with better terms and at least equal customer service) alternative became available, so I took it and saved myself £70 (25%).

I suspect the insurers will do exactly the same as they did when the EU made 'discrimination against men' illegal in insurance policies (despite us men having a far greater share of insurance claim payouts because of serious accidents) - which is simply to jack up the prices of the advantaged group across the board and to do nothing for existing customers.

The same situation is true for utility suppliers and mobile phone providers. People may switch on price, but if the service is poor, they won't stay, likely never return and also will tell friends, family and colleagues all about their experience.

Too many firms are guided in their approach by their marketing/sales teams and not customer services. Good word of mouth costs nothing; the opposite can cost a firm their existence.

Edited by Engineer Andy on 25/09/2020 at 14:22

Reply | Report as offensive | Link

Falkirk Bairn on 30 September 2020

I was with Esure for 2 cars from 2001 to 2016 - no claims in 15 years £160/£170 fully comp.

2016 premium jumps to £324 - I walked to Aviva.

2020 Aviva inflate the premium - I walk to LV

2021? I will walk if they play silly beggars

Reply | Report as offensive | Link

Engineer Andy on 1 October 2020

I was with Esure for 2 cars from 2001 to 2016 - no claims in 15 years £160/£170 fully comp.

2016 premium jumps to £324 - I walked to Aviva.

2020 Aviva inflate the premium - I walk to LV

2021? I will walk if they play silly beggars

Sounds very similar to my experience, although my premium at Esure was rising steadily rather than in one big jump. To get around it earlier on, I had to ditch my £0 excess and put it at £100. This was all while taking off the need for business use as well (admitedly that's only a small amount on an already lower mileage).

I wasn't prepared to up it again, despite myself similarly not having any claims during my similar length time with them.

I'm now with QuoteMeHappy. It'll be interesting to see what happens next year. I think that the age of the car (mine's approaching 15yo) also makes a difference, given I was quoted only about £30 more when I was looking for a brand new car back in early 2017 - and that was for a VW Scirocco 2.0 (180) GT - a car with significantly more power/performance than my Mazda3 1.6 petrol and obviously worth 10x (and more) as much.

I think that being with an insurer is like the boy who cried 'wolf!' - there's only so many times you can threaten to leave to presuade them to reduce their price before they realise it is an empty threat.

I just had a similar experience with plusnet - probably my last time I can threaten to leave to get a significant discount. Unfortunately, I found that there was very little decent alternatives in my area that were competitive on price and good on customer service. It took me nearly an hour to get them to reduce my bill by 20%.

Sad in this day and age that keeping your custom is very low on the priority list, as is customer service.

Reply | Report as offensive | Link

conman on 26 September 2020

In this day and age it takes about 20 minutes to check other insurers on the internet. Insurance companies will be shooting themselves in the foot if they now try to rip off customers. My recent quote from Esure raised the quote by £2, I can afford that. Price £190 fully comp. But I bought my Legal cover from BFS. for £10 for my 2 cars. saved a fortune from other legal cover quotes and if the insurance companies had any sense they would get their cover from BFS and then charge you £30-£40 for it. They most probably do.

Reply | Report as offensive | Link

MarianPenny on 28 September 2020

The AA does the same. Automatic renewal, goes up year by year and hard to cancel. I can't pay yearly as I always used to, they don't accept cheques or one-year card payments. I can only cancel by phone (they relucantly told me I could cancel by email but it would take 2 weeks to even get a reply!!) because that way they can keep trying to persuade you to continue with your memebrship and maybe add on a few (more) extras .... It's cheaper to start again every year but they make it very hard to do so :(

Reply | Report as offensive | Link

CanAmSteve on 28 September 2020

"Huw Evans, the Association of British Insurers director general, said: “The ABI agrees with the FCA that the household and motor insurance markets do not work as well as they should for all customers"

Well, if that's not the understatement of the year...

UK auto insurance needs much more rigorous regulation to protect consumers. You can't have the government holding a huge hammer in one hand (heavy fines for driving uninsured) and then be so sloppy about just what insurance covers and how it is priced. We've all heard the stories about insurance being invalidated because the car was repainted a different colour - or of the "admin" charges for informing your insurer you fitted winter tyres (which you did because you were afraid it would be invalid if you didn't). And if you think those examples are valid actions by insurers, you are part of the problem

Reply | Report as offensive | Link

NEIL SCARLETT on 28 September 2020

I have just renewed my insurance. My current insurer increased my premium significantly and when I complained they said that they would beat the quotes I had received on a comparison site. I told them that they should have given me the best price straight off and that even if they quoted less I would not go with them on principle. I also told them that I did not agree with auto. renew. It is a con. which benefits no one except the insurance companies. In future will not insure with any company that insists on auto renew, irrespective of how cheap they are. If it ever comes to the point where it is impossible to take out insurance without auto renew then I will simply pay on my bank card and before the policy is next due I will get a new card from the bank with a different number. Unfortunately, in this day and age, many things are a rip off.

Edited by NEIL SCARLETT on 28/09/2020 at 22:13

Reply | Report as offensive | Link

barryb on 1 October 2020

Direct line just increased my insurance by 18%. No explanation or change in policy content. Comparison sites revealed cheapest to be Tesco. I am paying what I paid last year. What a farce!

How do we get rid of the plethora of Marketing Experts and compliant Financial Idiots who now control the prices of so much of what we buy. LLoyds bank offer car insurance but want £40 for preparing the documents. Nice work if you can get it.

Reply | Report as offensive | Link

TrevD on 4 October 2020

They inflate premiums for existing claim free customers cos they can get away with it
The FCA have been promising for years to act on this & did very little
They only have proposed to act, but as usual they will let the insurers self regulate.
What a farce, I tried to haggle with Aviva & they said no, so I walked. When my property insurance was due Aviva actually reduced the premium from the previous year ! Just a coincidence ? I think not

Reply | Report as offensive | Link