What the UK car and home insurance shake-up means for the price you pay | Insurance | The Guardian

The biggest shake-up to the insurance industry for decades takes place on New Year’s Day, when insurers will be banned from quoting policyholders a higher price to renew their home or motor insurance than they would offer a new customer. The move will leave some customers better off, but others look likely to pay more.

What’s this all about?

After years of complaints that customers who regularly switched insurer were paying significantly lower premiums than those that renewed automatically, the Financial Conduct Authority (FCA) has said both sets of customers must now be offered the same price.

The FCA had found evidence that insurers were attracting new customers with artificially low prices and then increasing premiums in subsequent years – a practice known in the trade as “price walking”. Insurers were also found to be cynically targeting customers who they thought were less likely to switch in future. This move is designed to end the two-tier insurance market that has grown up as a result.

How will it work?

If the regulations are applied as intended, a car or home insurance customer receiving their renewal notice at the end of the year will be quoted the same premium as if they apply to switch to that company from a rival insurer. Until now, insurers offered generous discounts in the first year – often at or below cost – to attract customers in the hope they would be able to increase their premiums in subsequent years.

However, it is a bit more complicated than it first appears. Insurers must prove, on aggregate, they charge new and existing customers getting insurance via the same “channel” at the same price. In effect, this means that insurers can still charge different rates for customers who use different price comparison sites (channels) but they can’t favour new customers over existing ones.

What does this mean for prices?

The move looks likely to be bad news for households that switched their home and car insurers each year – chasing the lowest new-customer premiums. There was nothing to stop people switching suppliers each year taking advantage of the discounted deals – and that is what millions of people have been doing. This group will undoubtedly end up paying more each year to insure their homes and cars, as those discounts will no longer be there. Conversely, the FCA said it expects loyal customers who renew policies automatically to save £120 a year each.

Martin Lewis, the founder of the MoneySavingExpert website, and one of those who helped to turn UK consumers into a nation of switchers, said: “My best guess is firms won’t just cut renewal prices to match those for newbies. Rates will meet nearer the middle as happened in 2012, when insurers were barred from gender price discrimination. This will mean savings from switching are likely to relatively reduce.

“We’re still unsure of how this will work exactly, but prices for switchers are very likely to be relatively higher for January.”

Overall, insurance prices will still rise (and sometimes fall as happened in the pandemic) but they should shift equally for all customers – rather than just those who switch regularly.

Will it still be worth doing a price comparison at renewal?

Yes and this is still the best advice. Insurers tend to target different segments of the market, and some may still want to attract you as a customer and will quote accordingly. The big savings gained by switching will probably be a thing of the past, but there will still be savings on offer. Expect insurers to continue to offer deals via the price comparison websites such as Moneysupermarket, ComparetheMarket and so on. New entrants will still offer attractive prices to grab customers.

It is worth noting that price walking has been particularly prevalent in the home insurance market where those renewing policies were often charged double or even triple what they would have paid as a new customer of the same firm.

Anyone who has not swapped home insurance in recent years is advised to do a price comparison when they renew. Guardian Money is regularly contacted by people shocked having just discovered what their elderly parents or friends have been paying for their home insurance. Households have found themselves paying close to £1,000 a year for cover that could be bought elsewhere, or even from the same provider, for £250.