Home and motor insurance customers should pay no more when renewing their policy than they would if they were new to their provider, under proposals by the City regulator.
It means that for existing consumers, their renewal price would be no higher than the equivalent new-business price.
The proposals from the Financial Conduct Authority (FCA) would apply through the same sales channel.
For example, if the customer bought the policy online, they would be charged the same price as a new customer buying online.
— Financial Conduct Authority (@TheFCA) September 22, 2020
Firms would be free to set new-business prices, but they would be prevented from gradually increasing the renewal price to consumers over time – known as “price walking”, other than in line with changes in a customer’s risk.
Ten million policies across home and motor insurance are held by people who have been with their provider for five years or more.
New customers pay £285 for motor insurance while customers who have been with their provider for more than five years pay £370, according to analysis by the FCA based on typical risk.
The FCA previously identified six million policyholders were paying high or very high margins in 2018.
On Tuesday, it said that it estimates its proposals will save consumers £3.7 billion over 10 years and it will monitor their impact.
Christopher Woolard, interim chief executive of the FCA, said: “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.”
The FCA set out a package of proposed remedies to help ramp up competition between providers, as it published the final report of its market study into the pricing of home and motor insurance.
The regulator said it is concerned these markets are not working well for consumers.
The FCA is also consulting on other new measures to boost competition and deliver fair value to all insurance customers.
These include product governance rules requiring firms to consider how they offer fair value to all insurance customers over the longer term and requirements on firms to report certain data to the FCA, so that it can check the rules are being followed.
Firms use complex and opaque pricing practices that allow them to raise prices for consumers that renew with them year-on-year, the regulator said.
It is seeking views on its proposals by January 25 2021.