The Regulator (Financial Conduct Authority) has published the final report on the market study of general insurance pricing. This proposes that when a customer renews a household or motor insurance policy the premium charged should be no more than if they were a new customer to that provider. The regulator suggests that the proposals will, in the long term, improve competition and lower the costs to consumers on average. Confirmation of the new rules is expected next year.
The market study was instigated because it has been noted, for some years, that premiums charged at renewal have, sometimes resulted in it being cost effective to cancel the existing policy and take out a new one with the same insurer at a lower cost.
While firms would be free to set new business prices, they would be prevented from increasing renewal premium, other than in line with customers’ risk. For existing customers the renewal premium charged would have to be no higher than the equivalent premium for a new customer.
Automatic renewal has also been under examination and the regulator acknowledges that, for many customers, it can be of value and can ensure that cover is not allowed to lapse due to an oversight. This is particularly true in the case of vulnerable customers. It is also accepted that insurance brokers are typically closer to their customers than insurers and are key to explaining how automatic renewal works and how customers can cancel the facility if it is not the best system for them.
The British Insurance Brokers Association (BIBA) believe that there may be less switching as brokers review the market for their customers, at renewal, to see if there is a more suitable alternative to their existing policy. Although most brokers are not responsible for setting prices, they are very much part of the solution for customers.
“Brokers are by their nature innovators and will continue to use their entrepreneurial approach to be the ‘go-to’ business for customers seeking fair and good value insurance.”