Five things to know about the rule changes to the pricing of home and motor insurance
No one should under-estimate the significance of the new rule changes from the FCA on the pricing of home and private motor insurance that come into force on 1 January 2022. Not least as there are currently 27 million private motor and 18 million home insurance policies in force.
In a nutshell, the new rules will mean that the renewal premium charged to all existing home and motor insurance customers by their insurance provider must not be more than the price they would charge an equivalent new customer for the equivalent policy.
Five things to know about these changes:
1. The ABI welcomes these reforms. These changes will create a more level playing field between new and long-standing customers. Although millions of home and motor insurance customers receive good deals, we have long recognised that these highly competitive markets are not working as well as they should for some existing customers. So we had asked the Regulator to act to bring in these rule changes across the whole of the home and motor insurance markets.
2. These are significant changes. Never before have all home and motor insurers implemented such significant regulatory reforms to the way their products are priced at the same time. The industry will work closely with the FCA to deal with any teething issues that may stem from these significant changes. Everyone will be looking out for any unintended consequences, for example the possibility that distributors of home and motor insurance interpret and apply the rules differently, leading to some customers not receiving the same outcomes as others.
3. There are likely to be winners and losers. As the FCA has already confirmed, insurers have not made excessive profits from the pricing model that is now changing. They have also said that these reforms “will probably lead to some consumers paying higher prices if they currently benefit from significant new business discounts as inducements to switch.” In short, some customers who have managed to get cheap deals by shopping around may find that fewer discounts are available in the future and, consequently, the cost of their insurance is higher.
These changes are all about the price of insurance being re-balanced between new customers and those who stay with their existing insurance provider.
4. It is still important to shop around. The home and motor insurance markets are, and will remain, competitive, with a wide range of policies available at different prices, even if the scale and availability of some introductory discounts may reduce. Above all it remains important that consumers do not simply buy on price alone, but ensure that their insurance policy best meets their specific needs. For motor insurance, there are just over 100 registered motor insurers in the UK, so there should still be plenty of choice.
5. Your home and motor insurance renewal premium will be calculated in a very similar way to how it was before these changes. Home and motor insurance premiums will continue to be calculated by your insurer independently, using a wide range of factors. For example, for motor insurance, your age, type of vehicle, your driving record and claims history will typically be relevant.
The home and private insurance markets are entering a new era. But one that should ensure that policyholders are treated fairly and can continue to find good value products that meet their needs across a competitive market.