Car Insurance: Loyalty Pricing To Be Banned Under ‘Radical’ Reforms
Drivers are set to benefit from “radical” reforms that will ban so-called loyalty pricing in the car insurance industry…
Farewell To Loyalty Pricing
Loyalty pricing is due to be banned under “radical” reforms of the car insurance industry. The practice saw providers regularly increase the premiums (automatically and often dramatically) of their customers. In effect, consumers were being charged for their loyalty. The Financial Conduct Authority (FCA) is now putting an end to it. Generally speaking, car insurance policies come with automatic renewal; meaning drivers are re-enrolled unless they manually cancel their policies. Given that many drivers fail to shop around, car insurance providers would exploit their lack of interest by ramping up their fees. This meant that, for many drivers, the next year’s premium is much higher than that of the previous year.
Under the FCA’s proposals, insurers will now have to offer renewing customers the same price as the previous year. As a result, someone using a price comparison site will be provided with the same price as a new customer. Historically, the car insurance industry has made around £1.2 billion a year thanks to loyalty pricing; affecting around 6 million motorists annually. In addition, it’s put vulnerable people in a position in which they can’t avoid higher premiums; like older people who might be unfamiliar with price comparison sites.
‘Complex And Opaque’
The FCA has called loyalty pricing “complex and opaque”. In a statement, it said that the practice “target price increases on consumers who are less likely to switch and use practices that make it harder for people to leave”. It also wants to limit the amount insurance providers can spend on marketing to long-term customers. It proposals will be under consultation until January 2021. Christopher Woolard, the FCA’s interim chief executive, 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”.
James Blackham, chief executive of By Miles (a pay-by-mile car insurance provider) welcomed the reforms, claiming they represent “a huge win for UK consumers”. He added, “we applaud the strong measures and the detailed report that fully considers all the consequences set out today. The FCA must now act quickly to put these new rules in place to end ‘price walking’ and the loyalty penalty for good”.
Drivers Are At Risk Of Paying A Loyalty Tax On Their Car Insurance – https://www.autoserveclub.co.uk/blog/drivers-are-at-risk-of-paying-a-loyalty-tax-on-their-car-insurance/
Car Insurers Under Fire As Claims Plummet During Lockdown – https://autoserve.co.uk/motoring-news/car-insurers-under-fire-as-claims-plummet-during-lockdown/