The City regulator has announced plans to curb charging practices for automatic home and car insurance renewals, to help restore “fair value and trust” in the market.
The Financial Conduct Authority (FCA) said its proposals would ensure that customers would pay no more on renewals than if they were a new customer to their provider.
It was the headline measure as the watchdog moved to tackle findings in 2018 that six million consumers’ failure to switch providers meant they were paying a £1.2bn “loyalty penalty”.
The FCA hoped its proposed shake-up, which is now subject to consultation, would save households £3.7bn over 10 years.
It explained that its planned renewal restriction would only apply through the same sales channel.
For example, if the customer bought the policy online, they would be charged the same price as a new customer buying online.
Firms would be free to set new-business prices, but they would be prevented from gradually increasing the renewal price to consumers over time – known as “price walking”, other than in line with changes in a customer’s risk.
The regulator said: “Firms use complex and opaque pricing practices that allow them to raise prices for consumers that renew with them year on year.
“While some people shop around for a deal, many others are losing out for being loyal. Firms target price increases on consumers who are less likely to switch and use practices that make it harder for people to leave.”