We know that the regulator has long been concerned about different (and lower) premiums been offered to new customers compared to loyal customers who may not shop around for their insurances (the so called “loyalty penalty”). The FCA says that its work in the area has identified 6 million policyholders paying high or very high margins in 2018, where if they had paid the average for their insured risk they could have saved £1.2 billion.

Therefore, the FCA has today published its final report into pricing of home and motor insurance where it expresses significant concerns that these markets are not “working well” for customers. The regulator now proposes to take significant steps to remedy the situation:

• Where customers renew house or motor policies they should pay no more than new customers who often are provided with significant premium discounts through on line channels

• Insurers can set new business prices, but they will not be able to increase gradually renewal prices over time other than in accordance with changes in customers’ risk profiles.

The FCA is also consulting on other new measures intended to boost competition and deliver fair value to all customers on the market, including:

• Product governance rules requiring insurers to consider how they offer fair value to customers over the longer term.

• Requirements on firms to report certain data sets to the FCA so that it can check the rules are being followed.

• Making it simpler to stop automatic renewal across all general insurance products.

The FCA believes that the radical reforms could save consumers £3.7billion over 10 years. Overall, and if adopted, the regulator’s plans aim to see all customers, old and new, buying on the same insurance channel getting the same premium price.

Christopher Woolard, Interim Chief Executive of the FCA, commented:

‘We are consulting on a radical package that 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 package would also ensure that firms focus on providing fair value to all their customers. We welcome feedback on the proposals.’

The FCA seeks feedback from the insurance market on its proposals by 25 January 2021. It says then it will consider all the feedback and intends to publish a Policy Statement with new rules next year along with its response to the consultation feedback.