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New ABI and BIBA rules tackle insurance premium renewal rip-off

Customers that don't switch currently face 'loyalty premium'

As insurers come under fire for charging loyal customers more than new sign-ups, the insurance industry has announced guidelines designed to close the gap on policies for car, home and travel insurance.

The Association of British Insurers (ABI) and the British Insurance Brokers’ Association (BIBA) have set out new Guiding Principles and Action Points for members to ensure customers who don’t switch every year are offered a fairer deal.

Which? explains the ‘loyalty premium’ problem, the new measures and what impact they will have on your insurance costs.


The ‘loyalty premium’ impact

In the current market, many insurers offer the very best prices to new customers – often at a financial loss.

If you stick with an insurer for more than a year, your premiums may jump by a considerable amount at renewal, even though nothing about your policy has changed.

Since April, insurers have been required to display the previous year’s premium on renewal notices to make the price hike clearer.

But some firms have been caught out trying to dodge the rules and Which? has seen evidence of insurers charging long-standing customers exorbitant amounts.

Existing customer charged £400 more

In the latest Which? Money magazine, a member told us his elderly parents had been systematically overcharged by their home insurer, Prudential, for a decade.

The couple, who had no access to the internet, were paying £518 a year for a two-bedroom bungalow, when the same policy for a new customer was just £110.

Direct Line, which underwrites Prudential’s insurance, told Which? Money that premiums are ‘specific to individual customers based on the information provided, how likely they are to make a claim and our view of the risk’.

But under the new rules, insurers won’t be able to get away with this rip-off so easily.

What are ABI and BIBA’s rules on pricing?

To tackle this issue, the ABI and BIBA – the industry bodies for insurers and brokers – have announced new Guiding Principles for members to use as a framework for pricing policies going forward.

These include avoiding excessive price differences between new customer premiums and subsequent renewal premiums, and working towards better outcomes for loyal customers.

There are also a number of Action Points which will support the Guiding Principles, including requiring insurers and brokers to make clear that a new customer premium applies for that year and renewal premiums may be higher.

Crucially, insurers and brokers will now also have to review pricing for customers who have been with them for more than five years to ensure they are getting a fair deal.

Will you pay less for your insurance?

The new rules come into force today (8 May 2018) but this won’t mean your insurance quote or renewal price will change straight away.

The ABI and BIBA say they expect to see an improvement in the prices for long-standing customers but this will depend on how firms implement the changes.

In the coming months, it’s worth keeping a closer eye on your renewal notices to catch out the companies that aren’t setting prices in the spirit of the new rules.

Also, bear in mind that you may see insurers offering new customers higher prices to close the gap, rather than lowering the cost of renewals.

The ABI and BIBA say they will report on the impact of the measures in two years’ time.

The move does mean the Financial Conduct Authority (FCA) can take the principles into account when looking at a firm’s pricing practices and take action when there is evidence customers are not being offered a fair deal.

Do the new rules cover all types of insurance?

The new insurance guidelines apply to general insurance products which include motor, home and travel policies with contract terms of 10 months of longer.

However, pet and private health insurance policies will not fall under the new guidelines as these policies work slightly differently to general insurance as medical conditions are taken into account.

How to get the best deal on your insurance

Whatever type of insurance you need there are some simple steps you can take to ensure you save money.

Check the renewal price: You should pay close attention to how much your premium has changed on your renewal quote. Insurers must show you what you paid last year so this should be easy.

Compare prices: Even if the price difference on your renewal isn’t a huge amount, you should check what rivals will offer you using comparison websites.

Give extra details: To bring costs down you may also want to ensure you add in details about new home security or lower mileage that could help lower the premium.

Check your cover: Make sure that the policy provides the right level of cover for you and doesn’t come with unnecessary add-ons that aren’t of value.

Use cashback sites: You should also double check if you can buy the policy you find using a cashback website like Quidco or TopCashback to earn money back.

Haggle: Which? research found that customers saved an average £35 on breakdown cover, £40 on home insurance and £50 on car insurance by asking for a better deal. Check out our guide: how to haggle for tips.

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