Insurer company shares tumbled as financial regulator the FCA gave notice that the practice of charging less to new customers than existing ones must end.
The Financial Conduct Authority (FCA) said the “radical” reforms would save consumers GBP3.7bn over 10 years, but this might rise to GBP11bn if competition intensifies.
Home insurance customers with policies that have run for five years or more will see savings of GBP55 for building and contents insurance, GBP29 for contents, GBP55 for building insurance, and GBP62 for motor insurance each year, estimated the regulator.
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.”
Insurers penalising loyal customers through higher premiums is known as price walking and there are an estimated 10mln home and motor policies that have held for more than five years.
Sarah Coles, personal finance analyst, at Hargreaves Lansdown said while laudable the result might also be higher prices for those who switch regularly.
“The FCA is stepping in to protect loyal insurance customers from the great renewal rip off. But committed switchers may end up paying the price.
“At the moment, the industry is specifically designed to fleece people who don’t switch. Insurers even identify customers who are particularly likely to let their cover automatically renew, and apply higher renewal prices to them.
“Switchers can take advantage of these introductory deals, and then move before the price hikes. The new rules would put a stop to this overnight.”