The vast majority of UK consumers who are switching motor insurance policies do so for a cheaper price, but that is now being restricted following the Financial Conduct Authority’s (FCA) regulatory reforms.

GlobalData’s 2021 UK Insurance Consumer Survey found that 77.8% of motor insurance customers switched at renewal because a lower premium was offered by a new insurer. Our survey also found that 30.7% of all consumers switched to a new motor insurer in 2021. A further 41.6% shopped around but ended up staying with the same insurer. This highlights how many motor insurance consumers shop around for value in premiums every year.

The Mirror reported (via Insurance Times) that the cost of motor insurance has risen by £100 ($136) on average in 2022. The new reforms prevent insurers from offering cheaper policies to new customers than existing ones. The lack of preferential rates will make it harder for consumers to shop around for cheaper rates. This will be worrying news for the FCA, which introduced these measures in order to protect consumers. Typically, existing customers had faced higher rates than prospective ones because of the loyalty penalty.

As motor is a compulsory line, there is not a great deal that consumers can do, and insurers do not face the risk of people canceling policies, as in other lines. Rising prices will undoubtedly lead to more shopping around at renewal, but if no leading insurers are offering competitive premiums to new customers, then switching will not necessarily rise.

The largest threat to insurers is likely to be from pay-per-mile motor insurers. These are generally start-ups, with companies such as Metromile and ByMiles leading the way. Their policies offer consumers a cheap basic rate for the year, and then they will pay a flexible rate based on how much they drive. This means they can control costs, and it may even be more fitting anyway, with fewer consumers commuting to work on a daily basis due to COVID-19.

Overall, leading insurers and the FCA will need to work together to ensure premiums do not continue rising sharply throughout 2022. Consumers in the UK are facing low wage growth and an increased cost of living, so this would lead to many searching for alternative, cheaper forms of motor insurance, such as pay-per-mile.