- New rules aim to re-balance premiums between new and existing customers
The Association of British Insurers has today published guidance for consumers on how the rule changes to the pricing of home and private motor insurance could affect them.
From 1 January 2022, new rules from the industry regulator, the Financial Conduct Authority (FCA), will mean that premiums charged to all renewing home and private motor insurance customers by their insurance provider cannot be greater than the price they would charge to an equivalent new customer for the equivalent policy.
The ABI welcomes these changes, which will remove excessive price differences in the premiums paid by some new and existing customers for the same policy. While many insurance customers shop around for their home and motor insurance every year, and price differentials are common in other competitive markets, the ABI had asked the FCA to act to ensure that these rules apply across the home and motor insurance markets, whether you buy cover from an insurer, insurance broker, price comparison website or a retailer, such as a shop.
The FCA has acknowledged that, ‘…overall, firms providing home and motor insurance are profitable, although there is no evidence that these profits are excessive’.
So, these changes are about re-balancing premiums between new and existing renewing customers.
While the FCA also acknowledged that these changes will probably lead to some consumers paying higher prices if they currently benefit from significant new business discounts, we believe that the home and motor insurance markets should remain competitive.
Premiums will continue to be calculated independently by insurers, 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.
ABI’s advice to help existing customers to consider their options when their home and motor policies are due for renewal includes:
-Choose the policy that best meets your needs, which may not be the cheapest. It is crucial that you buy the policy that most closely meets your needs, not automatically opting for the cheapest cover.
-If considering renewing with your current insurer, check the renewal terms. Read your renewal documents carefully to make sure that the cover best meets your current needs, and that you are aware of any changes to the price, scope of cover, new conditions, and any changes in your circumstances that you need to tell your insurer about. Speak to your insurance provider or broker if unsure.
-It could still pay to shop around. The insurance market will continue to be competitive, with a wide range of policies available from a range of providers. If you are considering switching insurer, make sure you check that the policy best meets your needs.
These changes will supersede an ABI/British Insurance Brokers’ Association (BIBA) initiative launched three years ago aimed at improving outcomes for long-standing customers – the Guiding Principles and Action Points. As part of this, insurers and brokers reviewed their approach to home and motor customers who have been on their books for five or more years. A review of the initiative, published in July 2020, highlighted that there had been over 8.5 million pricing interventions across motor and home insurance worth a total value of £641 million. Individual firms reported an average saving per intervention ranging between £40 and £150.
James Dalton, ABI’s Director, General Insurance Policy, said:
“We support these reforms, and are pleased that the FCA has acted to bring them in across the home and motor insurance markets.
“While the FCA recognises that these changes could lead to price rises for some who shop around regularly, all customers should get fairer outcomes in the UK’s competitive home and motor insurance markets.
“These are very significant changes and insurers will work with the FCA to ensure as smooth a transition as possible for their customers.”
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Notes for Editors
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