Big insurance shake up coming: Firms warned to stop hiking premiums
The Financial Conduct Authority (FCA) has put out proposals to rid the insurance market of second-year price hikes that favour new customers over existing policyholders.
After an analysis of the market the FCA has accused insurers of "complex and opaque pricing practices" resulting in price rises while also adding that "firms target price increases on consumers who are less likely to switch and use practices that make it harder for people to leave".
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To combat this the FCA is proposing new rules that state if a customer renews their motor insurance policy, they should pay no more than if they were new to their provider. Insurers would be free to set new prices but they would be "prevented from gradually increasing the renewal price to consumers over time other than in line with changes in customers’ risk".
The FCA say this will lead to increased competition and will same consumers £3.7 billion over 10 years.
Huw Evans, Director General of the Association of British Insurers, says they agree with the FCA that insurance markets do not work as well as they should but points out that: "Insurers and brokers have already begun to tackle the issue of excessive price differences between new and existing customers through an industry initiative that has seen over 8.5 million pricing interventions across home and motor insurance worth £641 million."
It’s not perfect for everyone, however. In their own report the FCA recognise that the intervention will probably lead to "some consumers paying higher prices if they currently benefit from significant new business discounts as inducements to switch". Basically if you’re the sort of person who shops around every year, you might lose out.
For now these are just proposals and the FCA is inviting people to share views before January 2021.