FCA bans car and home insurance loyalty penalty

The Financial Conduct Authority's rules on insurance pricing rules for car and home insurance came into effect on 1 January 2022, banning the practice known as price walking, or the loyalty penalty¹. Under price walking, existing customers were charged more the longer they stayed with the same insurer¹. The changes follow a consultation the FCA launched in September 2020¹.

The core requirement is that insurers must offer existing customers who want to renew a price no higher than they would pay as a new customer coming through the same sales channel¹. The sales channel is how a customer reached the insurer, such as its website, the phone, a comparison site or a broker, and these can affect the premium¹. A renewal by phone must therefore be offered at the same price as a new customer joining by phone, which may be higher than the price available online¹. The FCA also introduced rules to make it easier to cancel insurance renewals and automatic renewal¹.

The FCA estimated the measures would save insurance customers £4.2bn over 10 years¹. It also said insurers were likely to stop offering unsustainably low-priced deals to new customers, so customers who switch every year might see a jump in cost at their next switch¹. The FCA does not intend to stop firms negotiating a final price with customers who dispute a quote¹.

The rules followed evidence on how much loyal customers paid. A 2018 Which? survey of more than 5,000 people with a home insurance policy found existing customers paid on average 20% more than new customers, and those who had stayed with their insurer for 15 to 20 years paid 75% more than those who had recently switched¹. Separate FCA research found that in 2018 roughly six million policyholders were paying £1.2bn more than they needed to because of the loyalty penalty and other pricing practices¹.

The Association of British Insurers said insurers supported the reforms and would keep working with the FCA to deliver them, adding that the remedies should ensure all customers get fair outcomes from competitive insurance markets¹. It said the rules should apply across the whole insurance market, including price comparison websites and insurance brokers, with uniform supervision and monitoring by the FCA¹.

Why it matters for households

From 1 January 2022, anyone renewing car insurance or home insurance could not be quoted a higher price than a new customer using the same sales channel¹. The change applied to renewals rather than to new policies, and it did not remove differences between channels: a phone renewal could still cost more than an online quote¹. The FCA expected the market to shift over time, with fewer unsustainably cheap deals for new customers, which the FCA said could raise costs for people who switch every year¹. The FCA's £4.2bn saving estimate covers 10 years across insurance customers as a whole, not a per-household figure¹. The FCA's rules sit within the wider remit of the Financial Conduct Authority¹.

What happens next

The pricing and auto-renewal changes took effect on 1 January 2022¹. The FCA has not reported further measures in these sources. Which? said the regulator should keep a close eye on insurers to ensure they do not find new ways to exploit customers, and that greater transparency is still needed on the factors firms use to set prices¹.