By Rocio Concha of Which?

Published 6th Jan 2024, 01:00 BST

Renewing insurance policies has become something of a vexed issue in recent years. In a bid to attract new customers, insurers have often offered them better deals - but this came at the expense of existing customers, whose premiums went up and up unless they were prepared to haggle or switch. This became known as a “loyalty penalty”.The situation became so serious that, at the beginning of 2022, financial regulator the Financial Conduct Authority (FCA) stepped in to ban the practice of “price-walking” for car and motor insurance policies. At the time, the FCA heralded the intervention as one which would save insurance customers £4.2 billion over the next decade. No longer, they argued, would loyal customers be penalised for sticking with the same company.

As we mark the two-year anniversary of the loyalty penalty ban, it’s an appropriate time to ask if consumers are getting the expected benefit from this change.

Concerningly, recent research from Which? found that existing car insurance customers are still being disadvantaged when it comes to renewal time compared to new customers.

Renewing insurance policies has become something of a vexed issue in recent years. (Photo by PA)

When we surveyed nearly 2,000 drivers, six in 10 of them said their premiums rose when they last renewed or switched - with one in seven saying that increase had been ‘significant’.

We found that existing customers are being disadvantaged. One in five customers told Which? that when they renewed their policy they compared their insurer’s renewal offer with quotes it gave if they applied as a new customer for the same cover. Half said they were offered lower prices when they did this.

Of course, this is all happening at a time when car insurance premiums have hit record levels. In November, the insurance trade body reported that drivers buying cover between July and September 2023 were paying £561, on average - an increase of 29 per cent (or roughly £126) compared with the same period in 2022.

Insurers have blamed the hikes on the rising costs of energy and repairs. A study from accountancy firm EY found that for every £1 motor insurers received in premiums in 2022, they paid out £1.10 in claims and operating costs.

Yet at a time when consumers are suffering the worst cost of living crisis in decades, insurance customers could be forgiven for wondering whether such extreme hikes are justified, or if insurers are playing fair with loyal customers.

Which? believes that the FCA needs to review whether its loyalty penalty ban, including allowing firms to charge different prices based on the sales channel, is working as intended. In the meantime, how can customers keep the price of their premiums down?While it can be a potentially daunting thing to do for first-timers, haggling is an effective way to bring the price of premiums down - and it’s something insurers expect customers to do.An effective haggler does their search on comparison sites first and, when the time comes to communicate with their insurer, has all of the information from rival firms to hand.

Most who tried haggling found the process easy, and most (69%) succeeded in getting a discount for their efforts - in some cases, saving over £100.

Why do I pay more than I bargained for as an existing insurance customer?: Rocio Concha

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