Insurance customers renewing policies in future may benefit from cheaper prices as the industry has promised to tackle the excessive premium differences that most insurers offer longstanding customers while new customers receive better deals.
The ABI (Association of British Insurers) and BIBA (British Insurance Brokers’ Association) introduced new guidelines on 8 May to address these discrepancies in the market.
The new initiative will apply to home, motor and travel insurance products. However, it won’t include pet or health insurance because the ABI says that many pet and private health insurance products provide cover at renewal for medical conditions that have arisen since the start of the policy so it would not be “valid” to compare with new policies.
New rules already require insurance companies to display the previous year’s premium clearly on renewal documents, encouraging consumers to shop around.
But the ABI says that this has made it difficult to offer good deals to both new and long-standing customers, with insurers sometimes selling the first year of a policy at a loss.
The new guidelines for ABI and BIBA members states that:
- They should not support excessive differences between new customer premiums and subsequent renewal premiums that unfairly penalise long-standing customers.
- They will take action to ensure that customers’ tendency to shop around at renewal will not lead to excessive pricing differences that unfairly penalise long-standing customers.
- They should make clear in written, online or verbal customer communications that the new customer premium only applies for that year and subsequent renewal premiums may be higher.
- They should review their pricing approach for customers who have been with them longer than five years and assess whether this approach delivers a fair outcome.
The ABI and BIBA, which say they cover “the vast majority of the insurance market”, have pledged to publish a report in no more than two years’ time to show how their members have tried to tackle excessive differences between new customer premiums and subsequent renewal premiums.
ABI chairman Andy Briggs says insurers do “a great job” for their customers, but the renewal market “simply doesn’t work where loyal customers get charged much more than new customers”.
He adds: “Given many consumers expect to get cheaper insurance when they shop around, there is no easy solution.
“These new guiding principles and action points are a positive initiative by the ABI and BIBA members to demonstrate that the whole industry recognises this is an important issue that needs to be addressed.”
However, the scheme is voluntary and it will be down to the individual companies to implement these principles, and there will be no action against members that don’t comply.
Georgie Frost, consumer advocate at comparison site GoCompare warns that consumers need to remain vigilant.
She says: "For too long when it comes to insurance, loyalty doesn't pay. It's about time the industry acknowledged this and tried to reset the balance towards loyal customers.
“These ‘guiding principles’ are a step in the right direction, but they’re definitely not a signal for consumers to take their eye off the ball.
“We’ll be able to see how effective this move has been in the ABI and BIBA’s joint report in two years’ time. But until then, drivers and homeowners must stay vigilant and fight back against rip-off renewal premiums, which can cost as much as £280.
“The message is simply, never trust your insurer and auto-renew. Compare with the rest of the market and if you think your loyalty is being rewarded with excessive pricing despite these new principles, switch to an insurer which will give you a better deal for the cover you need.”
Comparison site Comparethemarket also highlights the value of shopping around. It cites the example from its data to show that the average premium for younger drivers stands at £1,322, which is £275 higher than the cheapest premium available for that age group. For all age groups, the average premium stands at £734, which is £123 higher than the cheapest policies on the market.
A spokesperson for Comparethemarket.com adds: “When it comes to buying financial products, customer loyalty is often not rewarded. Shopping around and switching, whether it be for insurance, banking or loans, is the best way to ensure you are on the most competitive deals. Consumers who automatically renew their cover or contract year after year, are likely to end up paying considerably more."