The car and home insurance 'loyalty penalty' will end in 2022 - should you switch anyway?

As of the 1st January, the insurance 'loyalty penalty' will theoretically become a thing of the past.

Car and home insurers will be banned from quoting their existing customers a higher price for renewing their insurance than they'd pay if they were a new customer.

This should stop the currently widespread practice of 'price walking', in which insurers increase premiums each year for their long-term customers

But it also means the end of exclusive discounts for new customers. So is it still worth switching insurers - and how else can you reduce your premium?

When can insurers raise your premium?

The new rules won't mean your premiums will stay the same. Here are some reasons you may have to pay more, even if you haven't made a claim recently:

• Your insurer considers that you or your neighbourhood has become more risky
• You're buying your insurance through a certain channel, eg. on the phone rather than online
• You're buying a policy just a few days before you want it to start
• The policy you're buying includes more features

The good news is that not all insurers will view your risk in the same way. Some may see you as less risky, and charge a lower premium.

Shopping around in advance and getting quotes from different channels could also cut costs.

Find out more: how to findcheap car insurance

What's happening with premiums now?

Recently, average car insurance premiums have been falling. According to ABI data, the average price paid for cover between July and September was £429 - 7% lower than it was a year earlier, and the lowest it's been in over five years. This trend may not continue, though.

Recent premium reductions have likely been contributed to by savings insurers made during recent lockdowns - when there was a drop in vehicle accidents due to fewer drivers on the roads. There has also been speculation that some insurers have been making the most of their remaining time - ahead of the loyalty penalty ban - to win over as many new customers as they can with attractive discounts.

According to statistics from MoneySuperMarket.com, average home insurance premiums have declined, as well - though only by 5.1% since their peak in 2020. The average combined home and contents policy quote given by the site was £138.75.

Nonetheless, with both types of insurance, the run-up to 2022 has been a unique opportunity to benefit from new customer deals.

“Premiums only go one way - upwards”

In November 2021, we surveyed 1,805 car and home insurance owners from our Which? Connect Research Panel, to get their views on the end of the loyalty penalty.

Over half felt the changes would be a good thing in general - with many optimistic that it would make pricing 'more transparent' and 'a level playing field'. Under 10% felt it would be bad for insurance customers.

However, while members in our survey were generally optimistic about the changes, few believed they would personally save money. Only 11% of the drivers quizzed expect to pay less as a result of the changes, and 10% of home insurance customers. Three in ten told us they think they'll pay more.

Some members, who shop around regularly and benefit from discounts given to new customers - were concerned about these offers ending. Others are meanwhile unconvinced that insurers will be reined in. A home insurance customer commented 'Premiums only go one way - upwards,' whilst a driver remarked 'Insurance companies are better at finding ways to charge me more than I am at finding ways to get them to charge me less!'

The Financial Conduct Authority (FCA) - which is enforcing the ban - expects the rules to save consumers £4.2 billion over the next ten years.

The insurance industry broadly welcomes the reforms. James Dalton, Director of General Insurance Policy at the Association of British Insurers (ABI) - the industry's main trade body - said 'We support these reforms, and are pleased that the FCA has acted to bring them in across the home and motor insurance markets.

'While the FCA recognises that these changes could lead to price rises for some who shop around regularly, all customers should get fairer outcomes in the UK's competitive home and motor insurance markets. These are very significant changes and insurers will work with the FCA to ensure as smooth a transition as possible for their customers.'

• Find out more - How to find cheap home insurance

How to get the cheapest insurance deals in 2022

The loyalty penalty ban is expected to make insurance pricing fairer - but it will mean customers that regularly switch lose a long-enjoyed advantage. Nonetheless, this won't mean the first price your insurer offers you is the best you can get. Most of the time-tested tactics in getting the best deal will still pay off in 2022 and beyond.

Switch insurer

The insurance market is still expected to remain competitive. In other words, your car or home insurer will still have rivals that may be able to offer you a significantly better deal.

Regularly looking at the competition therefore remains worthwhile. Check multiple comparison sites to see what quotes other insurers are offering you for comparable cover.

Negotiate with insurers

Buying car or home insurance can be a bit like buying a car. It's generally sensible to assume that the first price they offer isn't the best they can do. The change in rules won't stop insurers giving better prices to customers who haggle.

You can do this from a more informed position by regularly shopping around. You can then invite your current insurer to meet or improve on better deals you've found. A Which? survey of 409 car insurance customers in 2020 found 75% of those who had attempted to negotiate a lower renewal price had succeeded (76% for home insurance).

Get quotes through different channels

The sales channel - whether you buy by phone, online, through a comparison site, a broker or direct - can have an impact on your price - and this will continue to be the case after the new rules come in. This is why it's worth checking multiple comparison sites, and also double checking what the insurer offers directly once you've seen prices elsewhere.

Check your policy suits your needs

However amazing the price you've found for a policy, if it's not going to cover your needs then it's potentially a waste of money.

Spend a bit of time reading the documentation before parting with your hard earned cash. Equally as important, check that the excesses are sums you're able to pay in a claim, and that any information or assumptions made about you are accurate.

Our car and home insurer reviews can give you an idea of what is and isn't covered by insurers' standard policies.