Home and motor insurers in the UK have been told by the markets regulator to stop making loyal customers pay high premiums.
The Financial Conduct Authority (FCA) made the argument as it published an interim report that is looking into home and motor insurance pricing. The markets watchdog estimated that roughly six million policyholders were paying high prices without getting a good deal for their insurance.
The FCA estimated that the customers paying too much could together save £1.2bn per year by paying the average premium of their risk. It believed about one in every three motor and home insurance holder is paying too much.
“This market is not working well for all consumers,” said Christopher Woolard, executive director of strategy and competition at the FCA. “While a large number of people shop around, many loyal customers are not getting a good deal.”
He added, “We have set out a package of potential remedies to ensure these markets are truly competitive and address the problems we have uncovered. We expect the industry to work with us as we do so.”
The FCA believes that while new customers are offered discounted prices, insurers tend to raise the costs when its time to renew them, especially for those deemed most unlikely to swap carrier. The regulator also thought longstanding customers pay more on average, but even some people who switch pay higher prices.
The authority also warned that it is considering tackling high premiums for consumers bay banning or restricting practices for consumers who renew every year. The FCA was also considering forcing firms to automatically move consumers to cheaper deals and stopping practices that discourage switching.
The FCA was also thinking about putting in ruled to make firms be more transparent and to encourage the sector to innovate and leverage technology more.
