Say goodbye to the insurance policy “loyalty penalty”. From next month insurers will be banned from penalising long-time customers. Consumers have long complained that renewal quotes for car and home insurance rise every year unless customers switch: insurers profit from consumer inertia.
Figures from comparison site Compare the Market show that “over half of households saw their insurance premiums rise at renewal in the past 12 months by an average of £81”, reports Grace Gausden for ThisisMoney. Customers who switch save an average of £262 on car insurance and £113 on home insurance, compared to those who auto-renew. The estimated 46% of vehicle and home policy holders who stick with their insurer are paying a steep price for their loyalty.
The Financial Conduct Authority (FCA), the City regulator, wants to put a stop to that. From January 2022 insurers will have to offer the same rates to new and existing customers who buy via the same channel (the same comparison site, for instance). The FCA forecasts that the changes will save consumers £4.2bn over the next decade. The likely upshot is that non-switchers will win and the more organised will lose; the changes are expected to see premiums converge, with those who auto-renew paying less overall, while new customers are charged more. “Avoid auto-renewing” your home and car insurance has long been basic personal-finance advice, but in the future the savings made by switching are likely to be less impressive. Instead of being a no-brainer, switching will depend on whether a competitor can offer a better deal for the long term, rather than just dangling a cheap introductory rate.
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The new rules mark a “fundamental shift in the car and home-insurance market”, but no one is quite sure how things will shake out, says Ian Smith in the Financial Times. Some say the habit of shopping around on comparison sites has become ingrained, but the FCA thinks there will be less switching as there will be less incentive to do so. Others hope that insurers shift to competing more on service and their reputation for paying claims than on price.
Bag a deal before the new year
With premiums for new customers set to rise, it’s time to see if you can bag yourself a deal before the new year, says Martin Lewis of Money Saving Expert. Check even if your current policy is not nearing renewal. While switching early incurs an administration fee (typically about £50), the potential savings may be even greater. One customer reports saving “over £400” after switching his home and car-insurance policies from a company he had been with for over 30 years. To begin your search, check at least two comparison sites, as well as insurers such as Direct Line and Aviva that do not appear in these listings. If you do want to stick with your insurer, then haggle: “Take the best price you’ve got to your existing insurer and see if it’ll match it.”
Put a reminder in the calendar to renew early. Compare the Market says that car insurance policies cost an average of £707 for someone switching on the renewal date, versus £401 for someone switching 20 days earlier, says Vicky Shaw in The Independent. “Around a third… of quote comparison enquiries are made the day before a policy ends or on the end date.”
Shopping around for a better deal on insurance is not many people’s idea of a fun Christmas activity; but thanks to the loyalty penalty ban it might be the last time you have to do it for a couple of years.
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