Have UK insurance reforms really rewarded loyal customers?

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The biggest UK home and motor insurance reform in years was aimed at disrupting the market. Changes introduced by the Financial Conduct Authority on January 1 aimed to prevent insurers from giving new customers discounts not available to long-standing customers.

In other words, they were supposed to bridge the gap between those who chop and switch insurers with each renewal and those who stay put.

The result? Well, it’s a little less clear than you thought.

The new rules state that renewal premiums for customers cannot be higher than that provider’s equivalent policy for a new customer purchasing through the same route (whether online, over the phone or through a broker).

Industry commentators had expected discounts for new customers – including those looking to switch providers – to decrease in number and size. The Financial Conduct Authority itself observed that the reforms would “likely result in some consumers paying higher prices if they currently receive deep discounts for new businesses as incentives to switch”.

Data from the insurance comparison site GoCompare for the first quarter seems to confirm this trend. It shows that the average price of new home insurance policies paid by its customers increased by around 5% between December 2021 and January 2022.

“We’ve seen new business premiums increase slightly where insurers seek to offset the impact of losing the higher premiums they get from those who automatically renew each year,” comments Ceri McMillan, home insurance expert at GoCompare.

However, broader research from confusion.com, another comparison site, suggests increases in renewal premiums continue to lag those for new policies. It found renewal quotes for existing policies in the first quarter rose by an average of £32 from a year ago, while new premiums rose by just £11 on average.

Of course, average figures can hide great disparities. Among insurers, some reported premium reductions for existing customers despite industry expectations. LV=, for example, said “the vast majority of our existing auto and home insurance customers are seeing their prices drop, demonstrating that the new rules are working and customers are benefiting.”

But anecdotal evidence from consumers suggests that experiences have been very mixed so far. A number of FT Money readers have indeed contacted us to report renewals with premium increases of only a few percent or even substantial decreases.

One explained how he stayed with his current supplier after making a claim five years ago; after five years of high premiums, he received a renewal quote in March that was lower than the initial price he had paid in 2017 before the claim. Another saw its premium fall from over £330 last year to just £87 in 2022, “for the same cover and conditions”. In his words, “what an economy!”

Other readers, however, have seen dramatic increases in renewal citations. Alastair Gibb emailed FT Money to tell us that his home and contents insurance premium had risen 73% from the 2021 price. Andrew Daley (pseudonym) had a similar experience, facing a 60% increase; “and we were told there was no movement in that premium unless we reduced our coverage.”

The two then looked elsewhere and moved on to much cheaper alternatives, emphasizing the continued need to shop around.

Remember that home and car insurance premiums depend on many factors: if you’ve recently made a claim, it will most likely increase your premium, as it would have before the January reforms.

Reduce premiums

Consumer champion MoneySavingExpert says it’s always a mistake to renew your insurance automatically with the same provider. “Instead, get quotes from comparison websites.”

These don’t all search for the same insurers, and they don’t all give identical prices, so for home insurance, MSE suggests: “Try as many as you have time in this order: confus.com, comparethemarket , moneysupermarket and GoCompare.” Also look at Direct Line, which does not appear on comparison sites.

Don’t pay too much. MSE says: “Use a reconstruction cost calculator to determine how much you need to insure for building coverage, and a content calculator so as not to over- or under-provide your content.

“Under the new regulations, your current insurer must offer you the same price at renewal as if you were a new customer buying via a price comparison, for example. So if your situation changes, your price is likely to change as well, regardless of the new price changes,” says Louise O’Shea, Managing Director of confusion.com.

Inflationary pressures are also now affecting prices, making it more difficult to identify the effects of regulation. An example is the skyrocketing cost of labor in construction, which drives up repair costs. O’Shea says that “insurers pay more to repair or replace cars or houses, and that will be reflected in the price we are given.” Also, with the pandemic subsiding, the number of claims is expected to increase, as burglaries and car accidents increase.

Another complication is that insurers can change terms – for example, the mandatory deductible or the amount a policyholder must pay on a bill, before insurers cover the rest.

It is very difficult for consumers to disentangle the forces that shape premiums, as insurers provide little or no explanation of why premium prices change. This must be handled by the watchdog, said Which? Silver Editor Jenny Ross.

“Customers deserve greater transparency about how insurers set their prices in the first place, and the FCA should continue its work to determine whether there are any practices that companies should be prohibited from using,” she said.

Meanwhile, as O’Shea observes, “The data proves there’s always a need to shop around. Yes, prices have gone up, but it’s very likely that there will be another insurer who can offer a better price for the cover you need, as the market is more competitive than ever.

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