Insurance firms are overcharging loyal customers by £1.2bn
MILLIONS of insurance policyholders are overpaying by £1.2billion a year as companies take advantage of their loyalty.
As many as six million householders and drivers are forking out on a “loyalty penalty”.
And insurers are using a range of tactics to freeze longstanding customers out of cheaper deals, warns the watchdog Financial Conduct Authority.
Its competition chief Christopher Woolard said: “Many loyal customers are not getting a good deal.”
The FCA may now force firms to automatically move renewing customers on to cheaper deals, or simply ban loyalty premiums.
It could also stop firms from using automatic renewals to discourage people from switching to cheaper deals and force insurers to reveal how their prices compare with rivals.
One in three customers who pays higher rates earns less than £30,000, it found.
And the proportion of older home insurance policy holders paying more expensive premiums is higher than those on cheaper deals.
This could be due to more elderly people not being able to use a computer to shop around.
A move two years ago to force home, motor and pet insurers to inform customers of price rises in renewal letters led to £185million in savings annually as people switched to better deals.
Gillian Guy, chief executive of Citizens Advice, said: “It’s great to see the FCA acknowledging that the insurance market isn’t working for consumers and pledging to crack down on the loyalty penalty.
“The FCA must now follow through on these bold ideas to stop loyal insurance customers being penalised.”
Last year, Citizens Advice research found customers who stay loyal to their mobile, broadband or insurance providers pay as much as £1,000 a year more than serial switchers – costing them an extra £4.1billion.
Finance expert Salman Haqqi, of money.co.uk, said: “Insurers make millions from customers who auto renew without checking for a better deal first, and any barriers to switching are completely unfair and must be stamped out.
“Customers need to be disloyal to insurers. If your insurer isn’t treating you fairly, find another one.”
Gareth Shaw, of consumer campaigners Which?, welcomed action on “sharp pricing practices” and firms that rip off loyal customers.