The FCA claim that loyalty pricing earns over £1.2bn for insurers, and it can affect over 6 million householders every year. This disproportionately affects those who are not easily able to shop around for competitive quotes, such as older people who may be less familiar with or don’t have access to comparison sites.
The practice has been occurring for years but the FCA is finally set to tackle the motor and home insurance markets which are not working well for the customer, putting forward proposals to remedy this. These proposals are out for consultation until January 2021
Christopher Woolard, Interim Chief Executive of the FCA, commented:
We are consulting on a radical package that would ensure firms cannot charge renewing customers more than new customers in future, and put an end to the very high prices paid by some long-standing customers. The package would also ensure that firms focus on providing fair value to all their customers. We welcome feedback on the proposals.
Simon England MD of ALA has said that, based on a similar undertaking by the FCA to tackle high GAP insurance premiums charged by motor dealers, we know from experience that the aims of the FCA reforms and the outcome can end up being quite different. He added
As part of a historic review the FCA found that a large proportion of car buyers were being severely overcharged for GAP cover, premiums being added onto customer purchases without their knowledge, being told they couldn’t buy it from anywhere else and were generally given poor service. Essentially the practices were not dissimilar to the misselling issues which occurred with PPI.
Ultimately whilst improvements were made, the industry was left to self-regulate – our customers often still tell us about GAP offered by dealers at hugely inflated premiums, meaning not all spurious practices have been eradicated and with very little follow up by the FCA.
The long term aims of the motor and home insurance reforms are to increase competition, reduce the cost price of insurance and so ultimately reduce premiums for consumers. In the opinion of ALA, anything which promotes better outcomes for customers is an excellent result. It simply remains to be seen how much the final changes mirror the original intent, and how effective the FCA will be in monitoring insurers going forward.