Many of us assume that we’ll be rewarded for sticking with the same providers, but in fact insurers often hike prices annually for long-standing customers, even when they haven’t made a claim.
Background to the FCA probe
The FCA promised to review whether loyal customers are overpaying for insurance earlier this year and last week said it had discovered “a number of areas of potential consumer harm.” It has now launched a market study to scrutinise pricing practices and how, if necessary, it should intervene to improve the market.
It is also working with the Competition and Markets Authority (CMA) as it investigates a super-complaint made by Citizens Advice on excessive pricing for customers who remain loyal to financial companies. According to Citizens Advice, customers who stick with the same suppliers for a range of financial products including mortgages, savings and insurance are losing a total of £4.2bn a year due to what it calls the “loyalty penalty”, equivalent to £877 per person.
Gareth Shaw, money expert at consumer association Which? said: “This review is long overdue. For years, loyal policyholders have been exploited by insurance providers, punished by excessive premiums, and have had to battle with unclear pricing that makes it difficult for people to understand whether or not they’re getting a fair deal.
“Customers who prefer to stay with one provider are at risk of being hit with vastly overpriced premiums when little has changed in the service they receive. It’s right that the regulator tackles this sector to ensure customers aren’t punished for their loyalty and that pricing is clear and transparent across the industry.”
What happens next
The FCA will publish an interim report next summer setting out its initial conclusions. A final report will be published, along with a consultation on proposed action if required, by the end of the year.
Andrew Bailey, chief executive at the FCA, said: “If change is needed to make the market work well for consumers, we will consider all possible remedies to achieve this.”
Three golden rules when buying insurance
If you’re worried about being over-charged when you buy home or motor insurance, follow these three golden rules to ensure you find the right level of cover at the right price.
Never automatically accept the renewal quote offered by your insurer without first seeing if you can find cheaper cover elsewhere. Use a comparison site to compare other available policies or contact a range of different insurers directly.
Make sure you compare like with like. If you find a cheaper policy, this could be because it doesn’t offer the same level of cover as your current policy, so check the small print carefully so you know exactly what is and isn’t included.
Remember that by law, you’ll have a minimum 14-day cooling off period when you buy home or car insurance, during which time you can change your mind. If you cancel the policy within this period, the insurer should refund any premiums you’ve paid, although you may be charged an admin fee.
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