UK regulators are to ban insurance companies from charging existing customers more than new ones for their motor and home cover.
The Financial Conduct Authority is trying to stamp out the so-called loyalty penalty — the practice of increasing prices for existing customers every year so that the most loyal customers pay the most for their insurance.
The FCA estimates that 6m people paid “high or very high” margins for their cover in 2018, and were overcharged by a total of £1.2bn.
The regulator has been consulting on solutions to the problem for almost a year and on Tuesday unveiled proposals that would ensure existing customers were not charged more than new ones who bought through the same sales channel. For example, an existing customer renewing online would not be charged more than a new customer buying a policy online.
“Firms would be free to set new business prices, but they would be prevented from gradually increasing the renewal price to consumers over time,” the FCA said in a statement.
However the FCA has rowed back from one of the most controversial changes it proposed last year. The regulator had suggested a possible ban on automatic renewal of policies, saying that people on automatic renewal were at greater risk of being overcharged. The insurance industry said that banning automatic renewal would leave people at risk of being uninsured if they forget to renew.
On Tuesday, the FCA said it would make it simpler to stop automatic renewal, but stopped short of an outright ban.