Car and home insurers face probe over fears loyal customers are being overcharged

31 October 2018

The UK financial regulator is launching a study into how general insurance firms charge their customers for home and motor insurance over fears they are being overcharged for cover.

Many households that stick with their insurer at renewal are often punished with higher premiums.

If you stay with your insurer the cost of insurance can go up each year even if you pose no greater risk, making the policy more expensive than that of a new customer.

The news of the investigation comes a month after Citizens Advice warned that loyal customers that stick with their provider are being ripped off.

It launched a “super-complaint” in September claiming households signed up with various services are losing £4.1 billion a year – or £877 per person – by staying with the same provider.

Georgie Frost, consumer advocate at GoCompare, says: “The so called ‘tease and squeeze’ approach to pricing is the go-to tactic in many industries, including car and home insurance."

She says: “New customers are enticed with a competitive price and then, if they don't shop around and switch, they face often stealthy - sometimes blatant - premium increases in subsequent years.”

Ms Frost adds: “Clearer rules and regulations will be better for everyone because we can't have a system where it is the most vulnerable that are the hardest hit.”

The Financial Conduct Authority says it is concerned that general insurance pricing practices have the potential to cause harm to consumers, particularly those who are vulnerable.

It believes the study will give it a greater understanding of the scale of the problem and what actions are required to improve the market.

It says: "Concerns around price differentiation have grown has firms have been able to obtain every increasing amounts of data about their customers. This often includes behavioural characteristic information as well as the details of the risk being insured."

General insurance plays a key part in the UK economy, generating over £78 billion in premiums for UK insurers.

According to the FCA’s Financial Lives Survey, 82% have one or more general insurance products, with home and motor insurance being the most common.

Tom Flack, editor-in-chief at MoneySuperMarket, says long-suffering consumers have been penalised with higher prices by staying with the same provider for too long.

He says: “There’s no ‘one size fits all’ approach and even if any new measures were embraced enthusiastically by insurers, it would not bring down bills overnight. People shouldn’t get lulled into a false sense of security that this is some sort of silver bullet."

He adds: “Shopping around using a price comparison site at the point of renewal is essential if customers want to be sure they’re getting the cheapest deal.”

The regulator says it expects firms to look after the interests of all customers and treat them fairly, whether they are new or long-standing and has written to CEOs of firms about its expectations.

Andrew Bailey, the FCA’s chief executive, says: “We want to make sure that general insurance markets deliver competitive and fair prices for all consumers. This market study will help us examine the outcomes from general insurance pricing practices and inform how, if necessary, we should intervene to improve the market.

“If change is needed to make the market work well for consumers, we will consider all possible remedies to achieve this.”

The FCA aims to publish an interim report in summer of 2019 and a final report by the end of the year.


In reply to by anonymous_stub (not verified)

After several years of "reasonable" increase in premiums, this year Aviva decided to up my premium by 20%. They were completely unsympathetic when called, telling me that there was nothing that could be done and that the rise was probably due to a higher incidence of accidents with other customers.....not sure why that should reflect on me.That prompted me to shop around and I paid 40% less than Aviva´s quote.

In reply to by anonymous_stub (not verified)

Doubt they will manage to control this practise with insurance, Should do the same with broadband charges as they are a massive rip off how new customers are tempted with special low rates and cash gifts, surely it is cheaper to keep your existing customers than keep signing up new ones for short terms. The government got people switching banks for rewards instead of rewarding loyal long term customers that cot the banks less in administration costs. I prefer to stick to any service long term if they give good service at the right price.

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