Watchdog considers ban on UK insurers charging loyalty premium
Financial Conduct Authority says about 6m policyholders are overcharged £1.2bn a year
The UK’s financial regulator is weighing whether to ban insurers charging a so-called loyalty premium in an attempt to stop about 6m policyholders in the UK being overcharged about £1.2bn a year.
The Financial Conduct Authority said the market for the pricing of home and motor insurance products “is not working well for all consumers” as it laid out its findings of a sector-wide study on Friday. It is particularly concerned about how customers who do not shop around for products are penalised by higher prices.
The watchdog’s study found that insurers jack up prices for customers unlikely to switch, and make it hard for policyholders to shop around.
In response, it is considering tough measures such as forcing companies to put customers on the cheapest equivalent deal, or making them publish the price differentials between customers, or even an outright ban on raising premiums for policyholders who renew. It will put out its final rules in the first quarter of 2020.
Christopher Woolard, the executive director for strategy at the FCA, said: “This market is not working well for all consumers. While a large number of people shop around, many loyal customers are not getting a good deal. We believe this affects around 6m consumers.”
The watchdog is worried that vulnerable people account for about a third of these policyholders, and that those on lower incomes are paying higher margins for combined contents and building insurance.
The FCA’s study comes after Citizens Advice, a leading consumer charity, made a “super complaint” a year ago to the Competition and Markets Authority over the loyalty penalty that it thought amounted to about £4bn a year across five sectors. Citizens Advice said the mobile, broadband, home insurance, mortgages and savings markets were ripping off loyal customers by about £900 a year.
The FCA said at the time it would support the CMA’s work on the loyalty penalty.