New rules for the insurance industry have made it mandatory for insurers to ensure that existing customers do not have to pay a higher price than new customers for renewing certain policies. The move is expected to save UK customers some £4.2bn over the next 10 years. In this article, we explain the new insurance rule, including why it has been introduced and how it could affect you.
What is the new insurance rule?
The Financial Conduct Authority (FCA) implemented a ban on the so-called “loyalty penalty” on 1 January 2022, meaning that insurers can no longer charge existing customers more than new customers to renew their home or motor insurance policies.
Why has the new rule been introduced?
Previously, it was commonplace for insurance providers to increase prices for existing customers when they renewed their home or motor policies each year, while new customers were able to secure a comparatively cheaper deal. This loyalty penalty, which effectively charged customers for sticking with the same provider, had been adding hundreds of pounds onto insurance bills every year.
Many people prefer to stay with the same provider for long periods of time, avoiding the often time-consuming process of shopping around and arranging new direct debit payments, but this convenience had previously come at a cost. The FCA states that around 10 million home and motor insurance policies are held by people who have been with the same provider for more than 5 years, meaning millions of households have been paying extra just for being loyal to their insurer.
Back in September 2020, the FCA published a report on the insurance industry which found that new customers were paying around £285 on average for motor insurance, whereas customers who had been with the same provider for over 5 years were paying almost a hundred pounds more at £370. Similarly, new customers were paying £165 for combined building and contents insurance, while customers that had been with their provider for more than 5 years were paying £287.
How will the new rule affect my insurance?
The new rule means that those that stick with their current provider for more than a year - whether that be out of preference for that specific provider or simply because they have not had time to shop around - will not have to pay more when they renew than a new customer.
It is important to note that your premium may still increase - for example, if you have already claimed on your policy - but you should not have to pay more simply because you are an existing customer.
Although the move is expected to save UK customers an estimated £4.2bn over the next 10 years, some experts have warned that insurance policies are likely to become more expensive across the board to compensate for the change.
Fortunately, there is nothing in the new rule to stop you from negotiating to reduce the cost of your home or motor insurance policy if your provider advertises a “price match” guarantee, so you could still potentially secure yourself a cheaper deal if you are able to demonstrate that alternative providers are offering more competitive prices.
Bear in mind however that the new rule only applies to home and motor insurance, so other types of insurance may still charge more for existing customers to renew. This is why it is crucial to shop around if you are concerned about the loyalty penalty on other types of insurance.
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