FCA General Insurance Pricing Rules come into force

The Financial Conduct Authority's general insurance pricing rules came into force on 1 January 2022, requiring insurers to offer new and existing customers the same price¹. The rules apply to home and motor insurance policies sold to consumers, including household cover sold directly to policyholders².

Under the rules, a firm must not set a renewal price higher than the equivalent new business price it would offer that customer, applied at the point the renewal notice is prepared⁴. The stated purpose is to promote competition by giving consumers a realistic picture of the long-term cost of a product, and to protect consumers by ensuring they can understand that cost⁴. The rules are not intended to affect how risk is priced for home and motor insurance⁴.

The handbook sets out specific prohibitions. A firm must not systematically discriminate against customers based on tenure, and should not systematically charge higher fees to a renewing customer than to a new business customer⁴. It should not selectively close individual channels to take advantage of premium differences between channels, or fund a third-party incentive in a way that pushes the equivalent new business price above the price actually paid by new customers receiving that incentive⁴. Firms must keep written records of how they satisfy themselves they do not systematically discriminate by tenure, including minutes of any pricing committee⁴.

The rules also cover how the equivalent new business price is calculated. A firm must assume the existing customer approached through the same channel they used when first buying the policy; where that channel is no longer open or cannot be identified, it must assume the channel most commonly used by new business customers⁴. Each intermediary chain, price comparison website or affinity scheme is treated as a separate channel⁴. For combined home and motor packages, the renewal price for each element and for the bundled package must be no higher than the equivalent new business price⁴.

Which? reported that the rules were expected to save UK consumers £4.2bn over the next 10 years, and noted that while customers who stay with the same company benefit, very cheap switching deals were likely to end⁵. It added that premiums would still change from year to year⁵. Quotemehappy.com said it expected overall prices for new customers to rise across the industry and renewal prices to come down overall, though it said this did not guarantee any individual price would fall⁶. The Financial Ombudsman Service said it had been engaging with firms, the Association of British Insurers and the FCA to understand complaints consumers may have as the rules take effect, and had updated its website guidance on insurance pricing complaints¹.

Why it matters for households

The rules affect anyone renewing a home or motor insurance policy from 1 January 2022. At renewal, the price offered cannot exceed the equivalent new business price for that customer⁴. This changes the position for households that had stayed with the same insurer for several years while new customers were quoted less, a practice the rules describe as dual pricing².

The effect on any individual premium is not fixed. Insurers price individually, and Quotemehappy.com said it expected new customer prices to rise across the industry and renewal prices to fall overall, without guaranteeing a drop for any one customer⁶. Which? reported the expected £4.2bn saving over 10 years and said premiums would still change annually⁵. The rules do not change how risk is priced⁴, so claims history, property and vehicle details still affect the quote.

Separately, the Financial Ombudsman Service reported 38,496 new insurance complaints in 2021/22, with car or motorcycle insurance the most complained-about product at 9,310 new complaints and claim declined the most complained-about issue at 11,196¹. It said it continued to see complaints where insurers could have done more to set out clearly what a policy covered¹. Consumers who cannot resolve a complaint with a firm can take it to the Financial Ombudsman Service.

What happens next

The rules took effect on 1 January 2022 and remain in the FCA Handbook⁴. The Financial Ombudsman Service said it anticipated more complaints related to increased living costs driven by high inflation and high fuel prices, and possible rises in people unable to access credit or struggling with new and existing debts¹. It said it would continue to develop technical guidance for businesses and consumers on how to complain and to signpost where it can and cannot help¹. No further implementation dates for these pricing rules have been reported.