Drivers still face insurance ‘loyalty penalty’

Car insurers have punished loyal customers with price hikes despite a massive drop in the number of accidents, and rules banning the practice expected to come in later this year.

Claims dropped by a fifth last year as cars sat idle on driveways. As a result, the cost of a new insurance policy fell to a four-year low.

However, insurers are sneaking up prices for long-term customers renewing their policies. Four in 10 car insurance customers saw their bills increase in the last three months of 2020, with an average annual rise of £49, according to comparison site Confused.com. This practice, known as a “loyalty penalty”, is expected to be banned from July after the Financial Conduct Authority, the financial watchdog, found it unfairly penalised long-term customers. A ban would mean policyholders who renewed would pay no more than new customers buying the same protection.

James Daley, of consumer group Fairer Finance, said: “It seems like a number of insurers have decided to take advantage of the current pricing flexibility, before the City watchdog clamps down on it. It’s impossible to justify an increase in premiums. The FCA should hold insurers to account where they are pushing through disproportionate price increases.”

The Association of British Insurers, a trade body, said although motor claims fell last year, the average payout rose, owing to increased vehicle repair costs.