What Does the Car and Home Insurance Loyalty Penalty Ban Mean For You?

Millions of car and home insurance customers are now protected from annual price hikes. We explain what this change might mean for you, and why it’s still worth shopping around.

John Ellmore, Holly Bennett Last updated on 20 January 2022.
What Does the Car and Home Insurance Loyalty Penalty Ban Mean For You?

Since January 2022, insurers have been banned from charging their existing home and motor insurance customers more than new customers for the same cover.

According to a 2020 report by the Financial Conduct Authority (FCA), 10 million policies for home and motor insurance are held by people who have stayed with the same provider for five years or longer. And it’s these customers that have been paying considerably more than new customers.

Why did the FCA ban the loyalty penalty?

Your car and home insurance policies will most likely auto-renew each year, which is a convenient and easy way of staying insured. You are simply re-enrolled for another year of cover, unless you or your insurer cancels the policy.

The problem before the rules came into force was that many people didn’t shop around for a better deal at the end of the policy year. This meant, in many cases, a hike in premiums for apparently no good reason, apart from the fact they stayed put.

For many years, consumer campaigning groups tried to get these unfair annual price hikes banned. Change was prompted when Citizens Advice submitted a ‘super complaint’ to the FCA, which led to the Competitions and Markets Authority insisting that insurers stop these unfair practices.

An FCA investigation into the loyalty penalty was prompted in the wake of this campaign, and its findings led to the ban of the unfair pricing strategy.

How unfair pricing happened

Among other key findings, the FCA found a stark contrast between premiums paid by motor and home insurance customers who had stayed with the same insurer for five years, and the premium paid by new customers. For example, the regulator found that, on average, new customers were paying £122 less than existing customers for combined buildings and contents insurance policies. The car insurance loyalty penalty was on average £85.

Before the rule change, when insurance companies set a price for a consumer, they took into account how likely a customer would be to switch. If they thought they could comfortably charge more without the consumer eventually switching to a better deal, they would hike their prices.

The strategy was to sell policies to new customers at discounted rates and increase premiums annually to those least likely to switch. In short, this punished consumers for their loyalty.

How will renewal prices change after the loyalty penalty ban?

In what looks to be a win for customers, insurers must now offer renewing customers the same car and home insurance price as an equivalent new customer for the same cover. This is whether you are buying the cover online, over the phone or through an insurance broker.

This levels the playing field for us all by not punishing customer loyalty. It also means vulnerable consumers who may have paid over the odds for staying put in the past will no longer face higher premiums for simply staying with the same insurer.

How will the loyalty penalty ban affect you?

The FCA predicts that the loyalty penalty ban will save consumers £4.2 billion over the next 10 years. If you haven’t switched your home or car insurance for a few years, you may be one of them. Whether insurers will change prices across the board, and what this levelling-off will look like, isn’t yet clear. But insurers will be monitored, to make sure they are complying and that customers are being treated fairly.

While rock-bottom deals for new customers may be a thing of the past, getting a competitive premium for your cover may still be possible.

As well as fairer pricing, insurers are now expected to make cancelling policies before auto-renewal easier.

» MORE: Tips to get cheaper home insurance

Your car and home insurance premium could still go up

While not being penalised for staying with your existing provider looks to be great news for home and car insurance customers, it’s important to be aware that shopping around is still a good idea. This is because:

  • Your premium could still go up. So if you make a claim in the policy year, make changes to your policy, such as removing or adding a driver, or if an insurer sees you as a higher risk to insure or other wider costs have increased, you might see an increase. It’s important to be clear that the new rules just mean that new customers can’t be charged less than existing customers for the same cover bought in the same way.
  • You might still find better deals, or cheaper premiums for the level of cover you need, by shopping around and comparing prices before your policy auto-renews. It’s a competitive market and it’s likely to remain that way.
  • It’s not just about price, as the cheapest deal isn’t always the best deal for you. You might still want to switch to a different insurer, perhaps to get more suitable cover or better customer service.

How to renew your car or home insurance

You should receive a reminder or notice of renewal from your insurer detailing your new price around a month before it renews. This is if you haven’t already told your insurer you don’t want to renew and your policy is still active. You may also want to make a note in your calendar.

If you’re happy for auto-renewal to go ahead at the price you’ve been quoted and want to stay with your current insurer, you don’t usually need to do anything except read the renewal information carefully. Don’t skip this, as you will need to make sure the details are correct and the cover is still right for you. You should also check for any changes your insurer has made to the terms of your cover.

If anything is wrong, or if the cover isn’t right for you, let your insurer know as soon as possible, ideally ahead of renewal time. This could be anything from needing a higher level of contents cover to adding a named driver to your car insurance policy.

» MORE: Buildings and contents insurance mistakes to avoid

How to switch your car or home insurance

You can change your insurance provider whenever you like, whether that’s because you have found a more competitive deal at renewal time or want to switch to a provider and policy that suits you better. To avoid admin fees that can come with cancelling a policy, you may want to wait until your car or home insurance policy is due to renew.

Comparison sites are a quick way to compare the price of the cover you need across a number of different insurers. You can compare car insurance and home insurance prices in minutes using our easy comparison tool.

Make a note of when your current policy is due to end and when you want the new one to start, so there are no gaps in your cover.

You can also get a quote from individual insurers or use a broker. And don’t rule out negotiating a better price with your current insurer once you know the prices competitors are offering you.

Your timing may also affect the price you are offered. Getting quotes a few weeks before your policy is due to renew, rather than a few days, might secure you the most competitive prices. When it comes to how you pay, as some insurers charge interest for paying monthly, paying your annual premium up front might save you money, if it’s affordable for you.

» MORE: How to insure more than one car at the same time

About the authors:

John Ellmore is a director of NerdWallet UK and is a company spokesperson for consumer finance issues. John is committed to providing clear, accurate and transparent financial information. Read more

Holly champions clear, jargon-free writing. She’s been creating finance content for leading organisations for over 10 years. Read more

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