New rules requiring insurance companies to stop discriminating against loyal policyholders have unleashed a wave of industry-wide price increases, The Mail on Sunday can reveal.
Customers are being hit by inflation-busting 20 per cent-plus premium hikes on home and motor policies renewing this month. The dramatic increases make a mockery of boasts made by the City watchdog that its rules would save loyal customers more than £4billion in premiums over the next ten years.
Evidence collected by the MoS shows the price hikes are being imposed on those who have a longstanding policy with their insurer – the very people that the regulator says its rules are designed to protect. The Financial Conduct Authority had said the so-called loyalty penalty – where longstanding insurance customers are charged more than new ones – would be banned on January 1.
Fair deal?: Tom Desmier’s original renewal for his Mazda was 33 per cent higher before he applied as a new customer
But it seems that rather than raising prices for new customers and reducing them for loyal customers (thereby eliminating the loyalty penalty), it is longstanding customers who are being hit with double-digit increases to their premiums. Increases for those who shop around are likely to filter through in the coming weeks.
Seven days ago, the MoS predicted that the rule changes would trigger widespread price increases – wiping out the £4billion saving the regulator says its intervention in the market will result in. New data from online banking platform Trustly confirms our fears. A poll it commissioned indicates that three in four insurers plan to increase premiums as a result of the FCA rules that require new and existing customers to pay the same price for identical cover.
One in four insurers, it says, intend to raise prices by a staggering amount – anything between 61 and 70 per cent. Comparison website Comparethemarket also reported that motor premiums had jumped by nearly seven per cent in the first week of this month, year on year. But it warned that premiums would ‘rise sharply’ across the market in the coming weeks.
Evidence from readers suggests steep price increases have already been implemented by some insurers. Readers confirm that insurance companies have been demanding brutal premium increases in renewal notices sent out in the past few weeks.
In most cases, recipients have been loyal customers with the renewals sent out before the new FCA rules came into force (January 1), but applying to cover renewing this year. Retired systems analyst Tom Desmier, from Worcester Park in South West London, received a renewal notice for his motor insurance on December 27 last year.
Tom, 71, drives a 17-year-old Mazda 2, and has had his insurance with Liverpool Victoria for more than ten years. Although the policy is branded LV, it is actually administered by Allianz – the German insurer bought LV’s general insurance business in late 2019.
The renewal came in at just over £260, 33 per cent higher than last year. He then spoke to LV on two occasions to see whether he could get the premium reduced. He succeeded, albeit only taking it down to £247 as confirmed in an email dated December 31 (still a 26 per cent increase). Still not happy, he then decided to see what would happen if he contacted LV through a social media link provided on Trustpilot for disgruntled customers.
He was advised to get an online quote as a new customer. On January 2, he received a quote for just under £200, albeit with reduced mileage and a slightly higher excess (in other words not an identical policy). A price increase of just 2.2 per cent. LV terminated his existing insurance and the new policy was issued.
‘I’m pleased where I have ended up,’ he says. ‘But it does beg the question as to whether LV is treating new and existing customers the same, as required by the regulator.’
A letter received by Tom from the chief executive of LV General Insurance in advance of receiving his renewal notice was categorical: ‘At renewal, we’ll check the price you’d get as a new customer with the same motor or home cover from us. We’ll make sure your price matches or beats it.’
The same letter said that the renewal price could go up or down depending on things like the cost of repairs, or if you’ve made any claims. Tom hadn’t made any claim. LV General Insurance told the MoS it was ‘fully compliant with the FCA changes’ and had changed its pricing policy slightly ahead of the new rules. It also said that any policyholder renewing their cover now would not pay more than a new customer for a like-for-like policy bought in the same way as their original cover.
It insisted that ‘most’ of its car and home customers are seeing decreases in their renewal prices, although it said some faced higher prices as a result of its ‘view on certain risks’. Yet Tom is not alone. Eifion Davies is a 56-year-old catering manager at a retirement home for vicars in Lingfield, Surrey. He received a renewal quote from LV at the start of this year stating the premium on his car cover would be jumping by nearly 25 per cent from February.
L IKE Tom, he managed to haggle, but it would still have meant a 19 per cent increase. ‘I’ve been with LV for six years,’ he says. ‘Nothing has changed over the past year: I drive the same car and I’ve had no accidents. So why an initial demand for £64 more? That’s not rewarding loyalty.’ Eifion has now obtained identical cover from Saga at a premium cheaper than last year.
Helen Richards, a 64-year-old radiographer from Rickmansworth in Hertfordshire, has been told her home insurance cover with LV will cost her nearly 50 per cent more if she renews. On questioning LV, she was told it was because of new regulations. She will now shop around for a new insurer. ‘So much for loyal customers getting a better deal,’ she says. Rod Coulstock will also shop around for home insurance after being told his LV cover would cost 26 per cent more when it renews at the start of next month. Like Tom and Eifion, he tried to get LV to offer him a better price, but unlike them he got nowhere.
‘I’ll now look around,’ says 84-year-old Rod, a retired civil servant from Waterlooville in Hampshire. ‘It’s a shame because our relationship with LV goes back nearly 50 years, to the days when they would collect some premiums by an agent knocking on your front door.’
Gareth John, a former managing director of an aerospace company, has had home and car insurance with Direct Line for nine years. He has just been told his cover will now cost 20 per cent more.
Gareth, who is 66 and lives near Tenby in Dyfed, called Direct Line, to be told the price increase was a result of new rules and there would be no movement on the renewal premiums. He says: ‘I thought the new regulations were meant to reduce premiums for loyal customers while removing the price undercutting offered on new customer deals. How wrong I was.’ He is now trying to find a cheaper provider.
John Josephs, a retired solicitor from Northampton, has a multi-car policy with Aviva, covering his Skoda Scala and his wife’s Toyota Yaris. In December, before the FCA rules came in, he received a renewal quote for £950, 10 per cent higher than the previous year.
He managed to get this reduced to £825, only to shop around and discover that Aviva was offering exactly the same cover as a new customer for £544. Improving the quality of cover slightly, he ended up paying £574 – 40 per cent cheaper than the original quote.
‘Being a loyal customer last year counted for nothing,’ says John.
Aviva says: ‘The new rules don’t mean prices will not change or will always go down at renewal.’ The FCA told the MoS it would be keeping an eye on how the market develops and would hold companies to account if they do not meet its requirements.
The Association of British Insurers says the FCA’s remedy package will probably lead to some consumers paying higher prices at renewal – especially if their existing policy benefited from a new business discount.
What our evidence has uncovered is that higher prices are being demanded of loyal customers.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
Home and car cover prices soaring by 20% (or more!)