You are definitely not alone if you have been frustrated at the way suppliers offer better prices to new customers than they do to existing customers. 

This led to Citizens Advice making a “super-complaint” to the Competition and Markets Authority (CMA) in September 2018 about the so-called “loyalty penalty”. The CMA collaborated with the sector regulators to consider their markets and come up with solutions.

This ultimately resulted in the Financial Conduct Authority (FCA) carrying out a market study into the pricing of home and motor insurance. It has now published its final report in which it expresses its concern that these markets are not working well for consumers and so it is suggesting measures with the aim of enhancing competition, ensuring consumers will receive fair value, and increasing trust in these markets.

The FCA is proposing that when a customer renews their home or motor insurance policy, they pay no more than they would if they were new to their provider 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. 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 customers’ risk. For existing consumers, their renewal price would be no higher than the equivalent new business price.

The FCA says that firms use complex and opaque pricing practices that allow them to raise prices for consumers that renew with them year on year. While some people shop around for a deal, many others are losing out for being loyal. Firms target price increases on consumers who are less likely to switch and use practices that make it harder for people to leave. At the same time, firms do not always offer regular switchers their lowest prices.

The FCA is also consulting on other new measures which aim to boost competition and deliver fair value to all insurance customers including:

(a) product governance rules requiring firms to consider how they offer fair value to all insurance customers over the longer term

(b) requirements on firms to report certain data sets to the FCA so that it can check the rules are being followed

(c) making it simpler to stop automatic renewal across all general insurance products.

In the long-term, the proposed remedies are designed to improve competition. The FCA says that this should lead to lower costs for supplying insurance, and ultimately reduce the prices paid by consumers on average. The consultation ends on 25 January 2021. It plans to publish a Policy Statement and new rules next year.