Loyalty counts for something
What difference will the new year insurance pricing shake-up make?
Aradical insurance pricing shake-up means customers renewing their home or motor policy will no longer be paying a “penalty” for their loyalty to providers. Here is a look at the changes brought in by the Financial Conduct Authority (FCA) from January 1 2022:
Whatproblemsarethechanges aimingtofix?
Insurers often quote higher prices for existing customers than for new ones – this is known as the loyalty penalty. The extra amount balloons year after year.
Under the shake-up, loyal consumers who remain with their insurance provider can be sure they will not end up paying high prices simply because they have not switched.
Existing customers will be quoted the same price as new customers.
The measures will save consumers an estimated £4.2 billion over 10 years.
Customers may also find it easier to cancel the automatic renewal of their policy. Home and motor insurance firms will also have to report data to the FCA so it can supervise the market more effectively.
Howwidespreadisinsurance customer loyalty?
Ten million policies across home and motor insurance are held by people who have been with their provider for at least five years, the regulator said previously.
Howbigaretheloyaltypenaltiesthat peoplehavebeenpaying?
New customers have been paying around £285 for motor insurance while customers who have been with their provider for more than five years have been paying around £370, the FCA previously found.
New customers for combined buildings and contents insurance have been paying £165 typically while customers who have been with their provider for more than five years have been paying around £287.
And new customers for contents-only insurance have been paying £56 while customers who have been with their provider for more than five years have been paying £138.
Hasacustomer’sagealsobeena factor?
Yes. Motor insurance customers aged under 45 remain loyal for less than two years on average. Customers aged 65-plus typically stay loyal for more than four years.
The trend is similar for home insurance, the FCA said.
Sowillmypremiumremainfixed?
Premiums may still change – for example if you have made a claim on your policy then you might be quoted a higher price.
But you should not be charged more simply because you are an existing customer.
Willtherebenopointshopping around?
It is still worth looking for better deals elsewhere – and the new rules do not stop you negotiating with your current provider either.
Differences in firms’ products and service quality will also still be a good reason to switch. Couldsomeregularswitchers,who areoftenyoungercustomers,end upworseoff?
Habitual switchers might find premiums offered increase and discounts may not be as common or significant.
The FCA said previously: “We recognise that our interventions could lead to price increases for price-sensitive consumers, including younger consumers, who regularly shop around for their insurance.
“However, current new business prices are often unsustainably low as they are designed to attract customers who will pay significantly more in the future or are subsidised by loyal customers. We do not think this provides fair value to consumers overall. Nor are these very low prices always
offered to regular switchers.”
Whatelsecaninfluencethepolicies people choose?
Promotions can undermine consumers’ ability to select the best deal. Participants in an FCA experiment were particularly attracted to promotions that included a pound sign or a percent sign.
But non-cash promotions, such as a free toy or cinema tickets, had a small and arguably economically negligible effect on participants’ ability to select the best insurance deal and assess policy prices correctly, researchers said.