Insurance firms must not penalise loyal customers, says FCA

Insurance firms must not penalise loyal customers, says FCA

The Financial Conduct Authority (FCA) has implemented a package of remedies to prevent insurance companies from issuing loyalty penalties to customers. 

The move is an attempt to improve competition and ensure renewal quotes for home and motor insurance consumers are not more expensive than they would be for new customers.

These measures address the issues identified in the FCA’s September 2020 market study, which found that millions of home and motor insurance customers lose out if they renew repeatedly with their current providers. In 2018, 6 million loyal policy holders would have saved £1.2 billion had they paid the average price for their actual risk.

Many firms increase prices for existing customers each year at renewal – this is known as price walking. This means that consumers have to shop around and switch every year to avoid paying higher prices for being loyal. It also distorts the way the market works for everyone. Many firms offer below-cost prices to attract new customers. They also use sophisticated processes to target the best deals at customers who they think will not switch in the future and will therefore pay more.



The FCA’s new rules will stop firms price walking. Insurers will be required to offer renewing customers a price that is no higher than they would pay as a new customer. It is likely that firms will no longer offer unsustainably low-priced deals to some customers.

However, the FCA estimates that these measures will save consumers £4.2bn over 10 years, by removing the loyalty penalty and making the market work better.

In addition to the new rules on pricing for home and motor insurance, the FCA is also bringing in new rules to:

  • Give most consumers easier methods of cancelling the automatic renewal of their policy,
  • Require insurance firms to do more to consider how they offer fair value to their customers, and
  • Require home and motor insurance firms to report data to the FCA so that it can supervise the market more effectively

Sheldon Mills, executive director, consumers and competition at the FCA, said: “These measures will put an end to the very high prices paid by many loyal customers. Consumers can still benefit from shopping around or negotiating with their current provider – but won’t be charged more at renewal just for being an existing customer.

“We are making the insurance market work better for millions of people. We will be watching closely to see how the market develops in the future and to ensure firms continue to deliver fairer value to consumers.”

The pricing, auto-renewal and data reporting remedies come into effect on 1 January 2022.

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