What the UK auto and home insurance restructuring means for the value you pay – The Guardian
The biggest upheaval in the insurance industry in decades takes place on New Year's Day, when insurers are prohibited from offering their policyholders a higher price for extending their home or car insurance than they would offer a new customer. The move will make some customers better off, but others will likely pay more.
What is this about?
After years of complaints that customers who regularly switched insurers paid significantly lower premiums than those who renewed automatically, the Financial Conduct Authority (FCA) said that the same price must now be offered to both customer groups.
The FCA had found evidence that insurers attracted new customers with artificially low prices and then increased their premiums in the following years – a practice that experts call “price walking”. It has also been found that insurers cynically target customers who they thought would be less likely to switch in the future. This is to end the two-tier insurance market that has grown as a result.
How will it work?
If the regulations are applied as intended, a car or home contents insurance customer who receives his extension notice at the end of the year receives the same premium as if he switched from a competing insurer to this company. So far, insurers have offered generous discounts in the first year – often at or below cost – in order to attract customers in the hope of being able to increase their premiums in the following years.
However, it is a little more complicated than it appears at first glance. Insurers have to prove that they are billing new and existing customers for the same “channel” at the same price. Ultimately, this means that insurers can still charge different tariffs for customers who use different price comparison sites (channels), but they cannot prefer new customers to existing customers.
The changes could be bad news for customers who switch insurers every year. Photo: Panther Media GmbH / Alamy
What does that mean for prices?
The move is likely to be bad news for households who change their home and car insurance every year – on the hunt for the lowest new customer premiums. Nothing stopped people from switching suppliers every year to take advantage of the discounted offers – and millions of people have done that. This group will no doubt pay more each year to insure their homes and cars as these discounts no longer apply. Conversely, the FCA expects loyal customers who automatically renew their policies to save £ 120 each year.
Martin Lewis, founder of the MoneySavingExpert website and one of those who helped transform UK consumers into a nation of switchers, said, "My best guess is that companies are not going to cut renewal prices just to get them for." Newbies correspond. Tariffs will be closer to the middle, as was the case in 2012, when insurers were excluded from gender-based price discrimination. This means that the savings from switching are likely to be relatively smaller.
"We're not sure how this will work yet, but switch prices are 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 – and not just for those who switch regularly.
Is it still worth comparing prices when renewing?
Yes and that is still the best advice. Insurers typically target different segments of the market and some of them may still want you to become customers and offer appropriate deals. The huge savings from switching will likely be a thing of the past, but savings will still be offered. Expect insurers to continue to offer deals through price comparison websites like Moneysupermarket, ComparetheMarket, etc. New entrants will continue to offer attractive prices to attract customers.
It's worth noting that price increases are particularly common in the home insurance market, where these renewing policies were often charged at double or even triple what they would have paid as a new customer of the same company.
Anyone who has not changed their home insurance in the past few years is advised to compare prices when renewing. Guardian Money is regularly contacted by people who are shocked after just finding out what their elderly parents or friends paid for their home insurance. Households pay nearly £ 1,000 a year for coverage that could be purchased elsewhere or even from the same provider for £ 250.