Loyal customers are being penalised with excessively high premium prices at renewal, the insurance industry has finally admitted.
It has pledged to crackdown on the high costs long-standing customers pay compared to the prices given to new customers.
The Association of British Insurers and the British Insurance Brokers’ Association have published a list of action points for insurers to follow to reverse the current system which sees existing customers paying up to 70 per cent more than new ones.
Insurers admit to excessive price differences for long-term customers and new customers
It follows on from a rule change last April which meant when insurers contacted customers when their policy was up for renewal, they had to list in a clear and prominent position how much the customer had paid the year before.
This was to try to make customers more aware of how much they are paying for their policy and encourage them to shop around if it was going up.
But there is still a big difference in the price new and existing customers pay, and according to research from Citizens Advice, loyal customers are paying an average of £110 than new customers.
Now the insurance industry has published an action plan to tackle the problem.
It will apply to insurance policies of 10 months or more including home, motor and travel insurance but not pet or health insurance.
It says insurers cannot use a customer’s renewal as an opportunity to hike prices excessively and lead to the kind of price differences which currently exist.
Insurers will also need to include in customer communications the fact that prices may rise at renewal and for those who have been with an insurers for five years or more, the cost of their premium will need to be reviewed to see if it is still fair.
In two years’ time a report will be published by the ABI and BIBA to show how these guidelines have helped and to reveal how insurers have worked to tackle the difference.
Insurers will need to tell customers their price might go up after the first year
Andy Briggs, ABI chairman, said: ‘Insurers do a great job for their customers, providing peace of mind and financial help when they most need it, but the renewal market simply doesn’t work where loyal customers get charged much more than new customers.
‘Given many consumers expect to get cheaper insurance when they shop around, there is no easy solution.
‘These new Guiding Principles and Action Points are a positive initiative by the ABI and BIBA members to demonstrate that the whole industry recognise this is an important issue that needs to be addressed.’
Lord Hunt of Wirral, chairman of BIBA said: ‘It is part of the DNA of insurance brokers to put the best interests of the client first.
‘That is why I am so delighted that insurers and brokers have come together for the benefit of our established and loyal customers, setting out a positive path forward on renewal pricing.
‘I would encourage everyone within the wider market to join with us in adopting these guiding principles and action points.’
Ian Hughes, chief executive of Consumer Intelligence, said: ‘The initiative from insurers and brokers is very welcome and shopping around is increasing with more than 1.4million comparing prices in the past year.
‘The good news is that consumers are better informed than ever and the FCA has made it clear that it is keeping a close eye on whether firms are adequately displaying the previous year’s premium at renewal.
‘The hope is that drawing consumers’ attention to what happens to their premiums at renewal will promote competition and ultimately help to wean insurance brands off dual pricing, whereby new customers get the best prices and loyal customers pay more. ‘
OUR VERDICT: ONUS WILL STILL BE ON THE CUSTOMER TO SWITCH
Rebecca Goodman of This is Money says: While it’s a positive move for the ABI and BIBA to acknowledge a problem which has been rife with insurance policies for years, what’s not clear is what will happen to the firms who don’t adhere to the new guidelines.
Will it be the case they are removed from the ABI or BIBA membership or will something more serious happen such as a financial penalty?
There are also no specific details given about how insurers should price new and existing customer premiums and what kind of price difference is deemed as ‘excessive’.
Therefore it will still be up to insurers to decide how to narrow this gap and to change prices accordingly.
I also think having to wait two years for a report is too long.
Why is this not being published on a regular basis, with insurers named and shamed who are not following the guidelines and still ripping-off customers?
So despite good intentions, I think the onus is still being left with the customer to switch and save and the action plan is unlikely to make much difference.