The Financial Conduct Authority (FCA) has announced new rules that, when implemented next January, will aim to shake up the pricing practices in the general insurance market, particularly when it comes to switch at renewal. The rules will focus on ensuring those renewing in the home and motor insurance markets will be quoted the same as a new customer using the same channel, ending the loyalty penalty faced by many.
Insights from GlobalData’s 2020 UK Insurance Consumer Survey indicate that 28% of home and 30% of motor insurance policyholders switched from their old insurance provider at the point of renewal. At present, these customers would typically receive the most attractive premiums when compared with customers of the same risk profile who have remained with the same provider for years. The rule change will reduce the need for policyholders to seek out the better deal, as they can be assured that their current provider is treating them fairly.
With the rules focusing on the channel used by the consumer, the impacts will be limited to a certain extent to channels that have the highest switching rates. In both the home and motor insurance markets, that means those operating within the price comparison website channel will likely face the biggest implications. GlobalData research indicates that 57% of home insurance and 53% of motor insurance customers purchasing through this channel switched their policy to a new provider in 2020.
Overall, this is good news for consumers and will force the industry to take a new approach to pricing in the home and motor insurance markets. With products already being highly commoditised, we may begin to see some providers differentiate themselves and reward loyal customers with benefits such as discounts on other products or services. Otherwise, people will always switch at renewal.