What is the FCA price walking ban?

The FCA has announced plans to ban price walking within the home and motor insurance markets, but what does this mean for customers in the future and how can you avoid these problems?

What is the FCA?

The FCA, also know as the Financial Conduct Authority regulates the operations of around 60,000 financial institutions within the UK. The FCA aims to protect consumers by monitoring the behaviour of firms ensuring that they are operating fairly and transparently. The FCA also actively search to identify those institutions who are not following the regulations to deter and prevent further poor conduct. This in turn helps to keep the industry stable and promotes healthy competition between financial service providers.

What is price walking?

Price walking can also be referred to as a loyalty penalty or dual pricing. This is when new insurance customers receive more competitive premiums compared to customers that are renewing their cover who instead receive an increase year on year.

What does the FCA price walking ban mean?

The ban on price walking that the FCA has confirmed will mean that some insurance providers will have to rethink their pricing strategies. Insurance providers will no longer be able to charge existing customers who wish to renew a price higher than a new customer would pay to open a policy with them.

FCA have estimated that across the insurance industry, £1.2bn was made from price walking in 2018 alone. The watchdog has predicted that the ban on price walking could potentially save customers up to £4.2bn over the 10 years following the ban’s implementation. The aim is to stop insurance firms luring in new customers with unsustainable rates and then dramatically increasing the premiums year on year afterwards.

The ban will begin on 1st January 2022 with a transitional period to allow firms some extra time to get their new processes and pricing structures in place with 17th of January 2022 to be the exact deadline. Firms will however have to backdate benefits to customers to the beginning of the month.

Future effects on the insurance industry

Prices

Once the price walking ban comes into play it is certain that new customers will notice prices rising across the market. This is due to the fact that insurance firms will have to begin closing the gap between the introductory offers and the renewal premiums that existing customers have to pay. The increase is likely to be seen more prominently within the home insurance industry and less so in the motor insurance side. Currently customers renewing their home insurance can expect to see premiums 9.4% higher in year 2 than those of new customers whereas in motor insurance the increase in year 2 is only 1.8% higher. Customers renewing their home insurance for the fifth year will pay on average 47% more than the new business counterparts and therefore there is a large pricing difference to rebalance.

Shopping around

Despite the fact new customers will not be receiving the usual discounted rates it is likely that majority of people will still be inclined to shop around each year. A study undertaken by Consumer Intelligence suggests that majority of people shop around each year and will continue to do so despite the new ban. Only 2% of the people of participants said that they never shop around and have no plans to start.

There is hopes that the FCA price walking ban will also help to stop more vulnerable people being exploited by the price increases who do not have access or the ability to shop around and switch insurance provider very year.

Brand Importance

Although price is not usually the standalone reason that an individual will choose a specific provider, companies will have to take a look at restrategising and identifying their other USPs to maximise marketing efforts on. Reputation, value and trust are likely to be characteristics that potential customers will focus more on as there will no longer be the excessively low starting prices to draw them in.

Industry Reputation

Consumers do not tend to have the most positive perception of the insurance industry. With the recent pandemic not helping the reputation of the industry, providers have been ruthlessly criticised for their poor service and unsatisfactory coverage reducing consumer trust further.

The FCA ban will hopefully work to improve the reputation of the industry as providers work towards more ethical practices where long-standing customers feel less penalised for their loyalty.

How Windsor Hill Mortgages can help

At Windsor Hill Mortgages, the software we use when finding you general insurance deals means that you are annually renewed onto the best rate for your policy so that you never have to worry about paying more than you need to.

Windsor Hill Mortgages

Speak to one of our advisors for a no obligation chat about what we could offer you, call us on 01225 962456.

For motor insurance we act as introducers only.