Is Pricing Practices set to finally end the so-called 'loyalty penalty'?

New rules came into force on 1st January 2022, and they could have a huge impact on the prices we're quoted for our insurance, ending the so-called 'loyalty penalty'.

How much we're quoted for our car and home insurances could be about to change

What’s it all about?


The new pricing rules apply to any car and home insurance policies that are sold to a consumer. They're intended to combat a process which is formally known as ‘price walking’ whereby a provider increases premiums at every renewal, but more commonly referred to as the 'loyalty penalty' as loyalty is often anything but rewarded. The Financial Conduct Authority (FCA) feel insurers are failing to achieve fair value for consumers and people are being punished for staying with their provider and remaining loyal. This also seemed particularly unfair on vulnerable customers who may not have the financial tact or tech savviness to take advantage of offers available for new customers.


The pricing rules also apply to any optional add-ons which can be sold alongside your car and home products. On car insurance this can be things like your Protected No Claim Discount and Legal Expenses. Home could include things like Home Emergency or Accidental Damage which are often optional.


What do I need to know as a customer?

In its simplest form, these new pricing rules will stop an insurer offering you a renewal price which is higher than what they would offer you as a new business customer. It has long been a frustration for customers that their insurance renewal is higher than a new business quote with the existing provider.

The good news is you can still be rewarded for loyalty with your existing insurer, as renewal prices can be cheaper than what a new business quote would be. It also doesn’t prevent insurance firms from negotiating a reduction in renewal with you if you have received a cheaper quote with a competitor.

It’s important to understand that your renewal premium can still go up. The pricing practices rules don’t mean your insurance will now automatically become cheaper. It only ensures that you wouldn’t get a reduced price as a new business customer versus a renewing customer, so if anything it could mean new business prices increase in general and to offset potential reductions in premiums on the renewals.


What about any changes I want to make to my policy after the renewal?

The pricing rules do not apply at mid term stage and only applies to the renewal. This means that if after 3 months you move address, the insurer may charge you an additional premium for the change in risk address. It could be possible that if you did a new business quote with your existing insurer, the amount could be cheaper pro rata than what they have just charged you. The pricing rules do not apply to any mid term changes and firms only have to ensure the renewal price is no higher than what they would charge the equivalent new business price (ENBP) offered to a new customer.


Sometimes insurers offer ‘free’ optional extras or perks to new business customers? What does the pricing rules say about this?


If any promotional new business optional extras are included free for new customers, then a renewing customer must also be offered the add-on for free. The FCA really have tried to think of everything and studied how insurers have enticed new customers in the past and where renewing customers have missed out.

Remind me, when did it start?


1st January 2022.

Final thoughts

Why stop at car and home policies? What about other insurance products? I would personally love it if something was done to stop my mobile phone contract doing the same thing. Every year I have to trawl the internet looking for new deals, only to go back to my provider and let them know I have found a cheaper quote as a new customer with my existing provider. Energy bills?! That would be another one I would love the pricing rules in this article to be applied to. Sky? The list is endless.....


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If you would like further information, the FCA's report can be reviewed in full here: https://www.fca.org.uk/publication/market-studies/ms18-1-3.pdf


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