In late May, the Financial Conduct Authority announced that a ban on ‘price walking’ – the process whereby insurance firms increase home and motor insurance premiums for existing customers who automatically renew their policy – would take effect from January 2022.
The watchdog estimates that, in 2018, the insurance industry made £1.2bn from six million policyholders through price walking, and that the ban will save customers £4.2bn over the 10 years following its implementation.
The Financial Conduct Authority (FCA) says the ban will come into play on 1 January 2022, “with a transitional provision for the rules on pricing and auto renewal disclosure. This allows firms until 17 January to have their processes in place, provided they backdate benefits to customers to 1 January”.
This ban, which will affect every home insurance policy sold with a new mortgage or a remortgage, “puts an end to artificially discounted home insurance premiums that hike at renewal; a practice that particularly punishes people who are time poor and often vulnerable”, says Uinsure chief commercial officer Martin Schultheiss.
He adds: “We can only speak for ourselves but we’re happy that this new ruling has been brought in. Customers shouldn’t have to outwit insurance companies just to get a fair price.”
Others in the insurance industry welcome the news with equal enthusiasm. Primis chief operating officer Toni Smith says she is, “confident that mortgage brokers will welcome the FCA’s intention to end price walking as this change will provide a more level playing field for intermediaries and enable them to better support their general insurance [GI] clients”.
Smith explains that, while the news is a boon to these clients, it provides an opportunity to advisers as well, who, “will be able to highlight their expertise in the GI market and provide clients with high-quality products without having to compete with the heavily reduced premiums available to new customers through aggregator sites and direct-to-consumer channels”.
Schultheiss concurs, saying: “As price will no longer be the sole representation of value, the profession can lead the insurance conversation without the traditional sensitivity on first-year prices. It’s a significant opportunity to reclaim intermediary market share from price comparison sites, which have become more successful since new-business pricing competition became artificially more aggressive.”
Paymentshield sales director James Watson reiterates that brokers will be on an equal footing with the ban in place, and that the rules, “will bring the broker market closer together as a community to take collective action to focus on value rather than price”.
He adds: “It will create a fairer marketplace in which consumers are offered products that are fit for purpose and priced clearly and appropriately, rather than an automated race to the bottom where the cheapest price is offered at the expense of all other considerations.”
However, London Money mortgage and protection planner Jiten Varsani says: “The FCA suggests firms cannot charge renewing clients more than they would charge new clients. The question then is: will we see existing clients get competitive renewal premiums or will new customers be charged more akin to that paid by renewal clients?”
Away from pricing concerns, market watchers point out that brokers and advisers will now be able to contact their clients with more regularity.
“With far less price sensitivity, not only do advisory firms offer a real differential that can deliver the outcomes the FCA is looking for, but it can also help create regular engagement and longevity in client relationships,” says Schultheiss.
He continues: “In other words, mortgage advice opens the door to the potential of a loyal and long-standing client base, but what is becoming more apparent is that insurance is the key to maintaining regular engagement with annual interactions in between increasingly longer-term fixed mortgages.”
And Watson says: “The removal of switching barriers ahead of renewal will also make it easier for advisers to attract remortgage and product transfer customers with an incumbent insurer.”
Smith says: “It’s really encouraging to see an increased focus on protection in the wake of Covid-19, and I hope the FCA’s move will prompt a greater number of brokers to broach the subject of GI and initiate more discussions in this area.
“Brokers can then use these conversations to gain a holistic view of their clients’ financial situations.”
Jiten concludes by suggesting that, despite the watchdog’s interest in GI, protection is unlikely to receive similar treatment.
“Unlike home or motor insurance policies, which are renewed (usually) annually,” he says, “personal protection policies provide long-term cover that continues on the terms offered from the outset (assuming no changes are made to the policy terms).
“A client may choose to take a new policy, should their needs change, but this is then a new policy rather than a renewal. As such, two clients with the same personal circumstances requiring the same cover would pay the same premium.”
