New rule stops auto-renewal ‘price march’, but could help increase premiums
Motorists are warned that auto insurance prices could rise this year, despite new rules introduced this month to protect customers.
New regulations have come into effect to prevent suppliers from overcharging existing customers.
The change means insurers can’t charge customers more for renewals than they would pay if they were a brand new customer.
It is designed to end the practice of the “price walk” where insurers increase renewal prices for existing customers while offering discounts to attract new customers.
In theory, the new Financial Conduct Authority rules should make prices fairer for drivers who don’t shop every year, but experts warn that this could inadvertently contribute to price increases throughout the year.
A number of comparison sites have warned that price hikes could be underway as driving habits return to pre-pandemic levels and insurers reassess their costs, with a service already reporting increases over the two. first weeks of the year.
Compare the Market said average quotes had increased by £ 43 so far this month compared to January 2020 and warned that while some companies continued to offer good deals, others were simply increasing prices across the board. domains.
Compare Market Director Ursula Gibbs said the rise was in part due to a return to pre-Covid driving behavior, but companies were also pushing up prices as they could no longer subsidize new customer offerings by charging more existing customers.
She said: “Car insurance costs have already risen by over £ 40 over a year and it is only in the second week of January. The main concern is that the level of savings currently available for people who seeking to change insurance provider imminently could reduce significantly in the coming weeks.
“Not all insurers made the switch immediately, but it is likely that prices could increase at all providers as insurers adjust to the new regulations.”
Louise O’Shea, CEO of Confused.com, also warned that the new rules did not automatically mean that a renewal quote was the best offer offered.
She said: “While we don’t know how soon the prices will go up, we have no doubts that they will.
“Over the past 12 months, we’ve seen the cost of auto insurance hit its lowest level in six years. And this is mainly due to the fact that people don’t drive as often. Now that we spend more time on the road, the risk of making a claim increases. Added to this, as the costs of repairing, replacing vehicles and caring for people injured in accidents increase, the overall cost of claims increases.
“Likewise, the changes in January could also trigger an increase. In the past, offering a large discount to new customers was often done to the detriment of repeat customers, who saw their prices increase. Without it to balance the discounts, some insurers may need to increase their prices to balance things out.
Ryan Fulthorpe, auto insurance spokesperson for GoCompare, said the new regulations sound the “death knell” for the loyalty penalty, but could negatively affect some drivers.
He commented: “We are already seeing small increases in the cost of auto insurance as people return to their pre-pandemic driving habits and more claims subsequently. But in terms of customers, this will have the most impact remains to be seen.
“Our advice is, and always has been, to take the renewal letter or email and compare that price with others in the market.