Britain’s financial regulator wants to ban automatic premium hikes after estimating six million people are paying too much for their insurance.
The FCA has proposed a suite of remedies to remedy the problem including a ban on raising prices for consumers who renew year on year and restrictions on automatic renewal.
Insurance firms will also have to publish information about price differentials between customers.
Shares in some major insurers were hit by the news, though it was largely expected, with Direct Line Insurance Group PLC (LON:DLG) down 3% and Sabre Insurance Group PLC (LON:SBRE) falling more than 1%, although RSA Insurance Group PLC (LON:RSA) was little moved and Admiral Group PLC (LON:ADM) was up 1%.
Market 'not working'
Christopher Woolard, executive director of strategy and competition at the FCA, said: 'This market is not working well for all consumers.
“While a large number of people shop around, many loyal customers are not getting a good deal.
“We believe this affects around 6 million consumers.
'We have set out a package of potential remedies to ensure these markets are truly competitive and address the problems we have uncovered. We expect the industry to work with us as we do so.'
The regulator added that its intervention has already seen premiums in both categories of home and motor insurance fall.
Home insurance premium increases at renewal were £2-£9 lower on average, or 1-3% of the average premium offered while motor premiums were £1-£6 lower per policy.
Longstanding customers pay more
Areas highlighted by the FCA included insurers charging higher premiums to customers who renew compared to premiums new customers.
Longstanding customers pay more on average, but even some people who switch pay higher prices, it said, while those with lower financial capability, on incomes below £30,000 and who bought combined contents and building insurance often paid more.
“Most firms, when setting a price, include their expectations of whether a customer will switch or pay an increased price. This is not made clear to the customer,” added the FCA.
The study is part the FCA’s general insurance pricing practices market study and follows a letter sent to the chief executives of the main insurance firms last October setting out the terms of reference and warning it was proposing changes.
A final report from the FCA is scheduled for the first quarter of next year.
Salman Haqqi at financial comparison site money.co.uk said it was no surprise that the FCA found six million people are a bad deal from their insurer.
“Insurers make millions from customers who auto-renew without checking for a better deal first and any barriers to switching are completely unfair and must be stamped out.
“Customers need to be disloyal to insurers. You are under no obligation to stay with an insurer but you do need to be proactive and take the time to search the market for a lower quote.”