Insurance

The FCA ends price-walking

The Financial Conduct Authority (FCA) is introducing new rules to tackle “price-walking,” which sees consumers pay more and more for insurance each year despite no increase in risk.

This move follows a super-complaint made by Citizens Advice to the Competition and Markets Authority back in 2018.

But, how exactly does this mean, and how will these changes affect your personal finances?

At The Salary Calculator, we’ll make sure you have all the information you need to discover how these changes will affect you!

This article will explain:

  • What price-walking is
  • Why the FCA stepped in
  • What the changes mean
  • How to launch a complaint against an insurance firm
  • Responses from across the industry

What is “price-walking”?

Price-walking, otherwise known as the loyalty penalty, refers to the phenomenon where insurance companies charge long-standing customers more to renew their cover while new customers receive cheaper premiums.

According to the FCA, customers lose out on £1.2bn a year due to what Citizens Advice has called a “systematic scam”.

Why has the FCA stepped in?

Back in February 2021, the FCA released its Final Report on general insurance pricing practices. In this report, the regulatory body outlined that general insurance markets must deliver “good outcomes” for all consumers, but that it had found that this is not the case due to price-walking.

One example used to demonstrate this is that while new customers for building insurance pay just £130, customers who have been with the same provider for five or more years pay £238.

Ultimately, it outlined that the practice “distorts competition” while increasing costs for both customers and firms, with higher overall prices for customers. It also highlighted that many insurance firms are not transparent about their price-walking practices.

What do the changes mean?

On 28 May, the FCA published its collection of new pricing practices rules, which primarily placed a prohibition on price-walking for home and motor insurance.

Other changes include giving customers easier methods of cancelling the automatic renewal of their policy and making sure insurance firms do more to “consider how they offer fair value to their customers.

Commenting on the changes, Sheldon Mills from 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”.

The changes will come into effect from 1 January 2022, and insurance firms will be required to report data to the FCA for improved supervision.

How to launch a complaint against an insurance provider

As a customer, if you become aware that your insurance provider is continuing with a banned practice, you must first complain to the firm directly.

Following this, the firm must respond to your complaint within eight weeks or explain why further investigation is required.

If the firm does not remedy the situation, you can then take your complaint to the Financial Ombudsman Service. This must be done within six months of the final response from the firm. Citizens Advice can also provide a helping hand.

The last resort is taking the firm to court.

How has the industry responded?

The announcement of the rule changes has been welcomed across the board. A spokesman for the Association of British Insurers said that it means firms will no longer be able to offer “unsustainably low-priced deals” to their customers.

Insuretech UK, meanwhile, said that the practice of price-walking has “damaged” customer trust in insurance products and “undermined the credibility” of the industry and voiced support for the changes.

Elsewhere, Rodney Bonnard, UK head of insurance at EY, said that the ban on price-walking points to a “new era of transparency”.

Finally, Matthew Upton, director of policy at Citizens Advice, said that price-walking had been particularly harmful to individuals on low-income and noted that the organisation was “pleased” to see the FCA set the bar “so high”.

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Wednesday, June 9th, 2021 Insurance No Comments

None of the content on this website, including blog posts, comments, or responses to user comments, is offered as financial advice. Figures used are for illustrative purposes only.

Why under employment bumps up insurance costs

[Guest Post]

Unemployment in the UK has edged closer to the three million mark, and is at its highest level since 1996. As well as not having a regular source of income, unemployed drivers are more likely to be hit by higher payments for car insurance. Motorists who are out work are being advised to shop around for better deals on websites such as moneysupermarket.

An investigation carried out by the BBC revealed that car owners without a job are, on average, paying around 30% more for their insurance than motorists with full-time jobs, while their premiums are potentially 63% higher. There are a few reasons why unemployed drivers are seen as risky by some insurers.

Peter Harrison, an expert on motor insurance from MoneySupermarket explained why: “This is partly because unemployed people are more likely to use their cars during the day and to drive up and down unfamiliar routes to a job interview. Also, some insurers perceive a drop in financial security as a result of losing a job means someone in that situation is more likely to make a claim, hence the rise in the price of premiums”.

When out of work, your car is vital in helping you find a new job, but the impact of losing income means you might struggle to keep up with payments on credit cards and mortgages, which could hit your credit rating. A poor credit rating could also impact upon the price of car insurance. This is why it pays to look for the best deal possible.

With the help of a price comparison site like MoneySupermarket, you can find a car insurance deal which can save you much-needed cash, but there are other ways to help you keep the cost down at a time when you need to tighten your belt. Getting a new quote could save money, as it could go down every year (£2.4bn is wasted by motorists by accepting renewal quotes). Adding someone with more driving experience to your policy could also drive the cost down.

Reducing your mileage could prove helpful. As well as saving on fuel costs, your insurer could take notice and slash the cost of your policy. Keeping in touch with the insurer about your current circumstances is also a good way to save money. Telling them about losing your job as soon as possible is important, as failing to do so could invalidate your insurance.

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Wednesday, February 22nd, 2012 Economy, Insurance, Jobs No Comments

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