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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
-
8 of the best houses for sale for around £1mProperty Houses for sale for around £1m – from an apartment in a converted church overlooking Abbey Road Studios, London, to a Georgian house in Devon with views towards Dartmoor
-
Rightmove: Autumn Budget pushed down asking prices but values will rise in 2025Asking prices dipped by more than usual in October amid fears of tax rises
-
Lock in an 11% yield with SabreTips Sabre, a best-in-class company is undervalued due to low profits in the motor insurance industry. Should you invest?
-
Is it cheaper to be a sole trader?It might be cheaper to be a sole trader due to changes to the tax system
-
Are insurance companies a good investment?Costs may be soaring but the insurance sector is currently going through one of its most profitable periods. The market has been slow to realise the opportunity here
-
The best fintech apps on the marketFrom digital banking to investment platforms, here are the top fintech apps on the market right now, according to David C. Stevenson
-
What pension providers don't tell you about your retirement moneyCheck the small print from your pension provider or risk losing thousands.
-
Britain’s stifling tax burdenChancellor Jeremy Hunt's Autumn Statement will see the tax burden rise in each of the next 5 years.
-
Brace for a year of tax risesThe government is strapped for cash, so prepare for tax rises. But it’s unlikely to be able to squeeze much more out of us.
-
Lock in high yields on savings, before they disappearAs interest rates peak, time to lock in high yields on your savings, while they are still available.
