End of the road for £ 1 billion a year insurance rip off: Victory for the Mail as businesses are prohibited from charging loyal customers more than new ones
- ‘Loyalty Penalty’ would cost long-term customers more than £ 1 billion a year
- But the Financial Conduct Authority yesterday upheld a ban on punishing loyalty
- The change, which will take effect in January, will save billions in insurance premiums
Millions of loyal insurance customers will save billions on their premiums starting next year after ten years of campaigning through the Daily Mail.
This newspaper has long been calling for an end to the harsh practice of auto and home insurers stocking up on their best deals for new customers.
The ‘loyalty penalty’ is thought to cost long-term customers more than £ 1 billion a year.
But the Financial Conduct Authority (FCA) yesterday upheld a ban on punishing loyal customers with more expensive renewals.
Millions of loyal insurance customers will save billions on their premiums starting next year after ten years of campaigning through the Daily Mail (stock image)
The change, starting in January, is expected to save customers an estimated £ 4.2 billion over a decade. It means that those who have unwittingly paid unreasonably high premiums – about six million policyholders – could be cut when the measures take effect.
The changes will “end the very high prices that many loyal customers pay,” the regulator said.
On average, a new customer pays £ 285 for motor insurance, while those who have worked with their provider for more than five years pay £ 370.
‘I saved £ 1,000 by looking for a new provider’
Sam Devo’s auto insurance company couldn’t reward his loyalty, so he took his business elsewhere
When Sam Devo’s auto insurer failed to reward his loyalty, he took his business elsewhere – saving over £ 1,000 on his premium.
The 20-year-old Trading Standards apprentice, pictured, had paid around £ 1,800 for coverage and expected this to diminish as he became a more experienced driver.
But when it was due for a renewal in January, he was shocked at the £ 1,740 quote from his broker A-Plan for his policy. He asked this and was offered a discount of up to £ 1,460.
But instead, he shopped around for a better deal and was able to get a £ 620 quote for his Ford Ka from a rival provider.
Mr Devo, from St Albans, Hertfordshire, welcomed the ban on the ‘loyalty penalty’ and said: ‘It is good to know that things are changing. I think loyalty should be rewarded. ‘
Likewise, new home insurance customers pay £ 130, while those who have worked with their provider for more than five years pay £ 238.
About 10 million home and motor insurance policies are taken out by customers who have been with their supplier for five years or more. The new rules will prevent companies from increasing premiums over time unless they are in line with changes in customer risk.
Providers should also make it easier for customers to cancel automatic policy renewals.
The rules only apply to motorcycle and home insurance.
Yesterday’s news was welcomed by insurance experts.
Kevin Pratt, of the financial website Forbes Advisor UK, said: “The way insurance companies set their prices has been a toxic issue for years.
‘Charging new customers less than those needing a refresh is a crude marketing tactic designed to get more people on the books.
‘It shamelessly exploits existing customers, who effectively subsidize the offered prices to new ones.’
Previously, the FCA found that six million policyholders paid £ 1.2 billion – or £ 200 each – more for home and motor insurance than if their average rates had been charged.
The Mail has been campaigning to end the loyalty scam for over a decade.
In 2018, the charity Citizens Advice, which represents the clients, filed a ‘super complaint’ about the practice with the Authority for Competition and Markets. In the same year, the FCA bowed to pressure and promised to crack down.
But the process has stalled repeatedly, most recently in March this year, when insurers complained to the FCA that they needed more time to “update their systems.”
Personal finance experts warned the move would lead to higher premiums.
Sarah Coles, of Hargreaves Lansdown investment firm, said, “Insurers will have no incentive to offer incredibly cheap deals.”
Charlotte Clark, of the Association of British Insurers, said, “These remedies should ensure that all customers get fair results in competitive insurance markets.”