Despite insurance ‘loyalty penalty ban’, existing customers are still being disadvantaged versus new customers, Which? finds

Two years since the Financial Conduct Authority (FCA) introduced its loyalty penalty ban, existing car insurance customers are still being disadvantaged compared to new customers, Which? research has found.

The consumer champion uncovered that it is still necessary for consumers to be or pose as new customers, haggle and switch when renewing their car insurance policy to get the best prices. Which? surveyed nearly 2,000 drivers and six in 10 (60%) found their premiums rose when they last renewed or switched, with one in seven (15%) noting that it rose ‘significantly’.One in five (22%) customers told Which? that when they renewed their policy they compared their insurer’s renewal offer with quotes it gave if they applied as a new customer for the same cover. Half (51%) said they were offered lower prices when they did this.

This suggests that nearly two years after the loyalty ban’s implementation, there is still an advantage to being a new customer or posing as one. FCA rules allow insurers to give renewal quotes that will not necessarily be the best they can offer. 

The FCA's requirements also allow insurers to charge different prices based on the method of purchasing - for example, customers renewing a policy over the phone might be able to get a better deal if they purchase online instead. Insurers can also reserve their best prices for customers who negotiate. 

Many customers have been left baffled by the increases in their premiums, as in most cases they cannot be explained by having made a claim. In November 2022, Mike Cooper, from Merseyside, saw his premium rise by £211 to £550 - although he had expected this as he had been involved in an accident where he’d been at fault. However a year later, in November 2023, when he received a renewal quote from Direct Line, he was surprised to learn there would be an even bigger premium hike this year, despite him not having made any claims since October 2022. The new price was £842 – an increase of £292 (53%). However, Mike managed to save £150 by haggling with his provider, Direct Line. 

Mike’s case demonstrates the financial pressure renewing customers are currently under. Another customer said this year she had received a renewal quote of nearly twice last year’s premium. This prompted her to check prices elsewhere via a comparison site, where she was able to find a policy she felt had better cover for £100 less than she paid last year.

According to Which?’s survey, young drivers pay some of the highest premiums. Most annual payers aged 35 or older paid more than £300. Meanwhile, over half of 18 to 24-year-olds paid at least £550, with a quarter paying more than £800. Things were slightly better for 25 to 30-year-olds – although, three in 10 paid more than £600.

The Association of British Insurers (ABI) said car insurance premiums are at their highest level on record. In November, the insurance trade body reported that drivers buying cover between July and September 2023 were paying £561, on average - an increase of 29 per cent (or roughly £126) compared with the same period in 2022.

The FCA has said it will carry out an evaluation of the effects of the loyalty penalty ban in 2024. Which? believes the regulator must look closely at whether its rules are working as intended, including how firms have implemented its rules and how different groups of consumers have been affected. 

Jenny Ross, Which? Money Editor, said:

“Two years on from the FCA’s loyalty plan, our latest research has found existing customers still face financial disadvantages compared to new customers, suggesting the regulator needs to ensure its rules are working as intended - by making insurance pricing fundamentally fairer and saving consumers money. 

“With household budgets under huge strain at the moment, and car insurance prices at record highs, it’s important not to renew your policy without first checking if you could pay less. The price quoted by your insurer is not necessarily the best price you can get. Doing your research on comparison sites, haggling and switching remain effective ways of bringing down premiums.”

ENDS

Notes to editors:

• The FCA recently had to crack down on Direct Line Group for not complying with the loyalty ban. The company agreed to pay an estimated £30m to some renewing customers who’d been incorrectly overcharged – which it blamed on a systems error. Link to FCA press release.

• Which? surveyed 1,992 adults who held car insurance in GB between 22nd and 25th September, 2023. Fieldwork was carried out online by Deltapoll.

RORs:

Direct Line: “Renewal quotes for our customers are based on our current view of risk and vary according to the latest data available, taking into account factors like the model of car and inflation. 

 “The Association of British Insurers have highlighted recently that ‘insurers are doing all they can to keep motor insurance as competitively priced as possible’. Insurers are experiencing inflationary pressures as well as delays in their repair and supply chains, with the cost of parts and materials going up.”

An FCA spokesperson said: “While firms have a duty to ensure renewing customers are offered a fair price, we’d still advise people to shop around to get the best deal.

 “We have taken action where we have seen firms not meeting the rules, and we’ll continue to do so.”

About Which?

Which? is the UK’s consumer champion, here to make life simpler, fairer and safer for everyone. Our research gets to the heart of consumer issues, our advice is impartial, and our rigorous product tests lead to expert recommendations. We’re the independent consumer voice that influences politicians and lawmakers, investigates, holds businesses to account and makes change happen. As an organisation, we’re not for profit and all for making consumers more powerful. The information in this press release is for editorial use by journalists and media outlets only. Any business seeking to reproduce information in this release should contact the Which? Endorsement Scheme team at endorsementscheme@which.co.uk.