The Financial Conduct Authority (FCA) will introduce a new rule in the new year to prevent insurance companies from discriminating against loyal customers in favour of new business.
Insurance providers often offer introductory prices to new customers to lure them in but then increase when the policy is renewed. This practice is called ‘price hiking’ and means that customers are penalised for being loyal to a company. To get the best rates, you need to shop around every year.
Of course, insurers can still increase premiums if a customer’s risk changes, for example, because they had an accident that year.
The rule change was proposed in 2020 when the FCA asked for feedback. It will come into force on 1 January 2022, with detailed changes to the law’s wording.
The FCA estimates that the new rules will save consumers £4.2 billion over ten years. Another benefit is that people will no longer switch insurers every year to get the best deal.
Sheldon Mills, Executive Director, Consumer and Competition at the FCA, said: “Our interventions will make the insurance market fairer and make it work better. Insurers can no longer penalise consumers who stay with them. You can still shop around and negotiate a better deal, but you will not have to switch to avoid a loyalty premium.”
As well as banning price gouging, the FCA is introducing rules to make it easier to cancel an insurance policy. One change is that insurers must give customers the option to refuse automatic renewals.
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