Finding a great deal on a car or home insurance policy is not an easy task as it requires extensive research and can often feel like winning the lottery. In most cases when you get the right insurance policy you get the feeling that you are being protected and secure and normally this would make you want to stick with this insurance as long as possible instead of constantly switching providers. However, what some people don’t realise is that in reality being loyal to one insurer incurs additional charges, known as home or car insurance loyalty penalty. It doesn’t make much sense, right? – Well, let us explain this better.
What is car insurance loyalty penalty and why FCA is putting an end to it?
It turns out that being loyal to one insurance provider doesn’t pay off, which is a result of the home or car insurance loyalty penalty imposed by insurers. This practice, also known as “price walking”, means that customers who decide to stay longer with the same insurer get charged more at the time of their renewal. In other words, insurance companies offer better car and home insurance deals for new customers providing them with a great discount with the purpose of increasing their customer base. Meanwhile, the existing customers are forced to shop around every year and switch providers so that they can avoid paying more.
According to research conducted by the Financial Conduct Authority (FCA) in 2018, as a result of the loyalty penalty around six million policyholders were paying £1.2bn more than they should at each policy renewal.
For that reason, the FCA has decided to put an end to this practice and incorporate a ban on the increased prices for car and home insurance renewals for loyal customers.
How will FCA’s ban on loyalty penalty affect insurance buyers in the UK?
In its essence, the idea behind the FCA’s ban is to provide better conditions to customers who would like to be loyal to a specific car or home insurance and not being forced to switch policies every year. Moreover, experts believe that this ban would save customers up to £4.2bn over 10 years. On top of that, the UK financial watchdog predicts that the ban on home and car insurance loyalty penalty would allow the market to work better. Mainly due to the fact that the FCA will also require insurers to provide their customers with easier methods for cancelling their automatic renewals of car and home insurance policies. It is expected that this ban should come into effect on January 1st 2022.
In reality, if the FCA ban is implemented insurers will be forced to charge the existing customers the same price as they would charge new customers. This in turn may cause some increases in the offered premiums for customers that have the habit to switch providers regularly and haggle the price. Due to this proposed ban insurers won’t be able to offer such high discounts to new customers as they are doing now.
Is it still worth shopping around?
The short answer is yes!
As the loyalty penalty ban by the FCA is still not in place and it won’t be until early next year everything remains the same. Insurance companies are still using this practice and offer attractive car and home insurance deals for new customers. Therefore you have the option to switch between providers.
Even after the ban comes into effect, shopping around for better deals may still be a good idea. Although it is expected that premiums for new and existing customers are largely equalised, different insurers will have different profit margin expectation and distinct cost structure, both of which may mean that deals can still be found. Until we see for sure, over the coming years, incentives to new customers become less attractive, it’s always worth exploring the market before your policy expires so that you can find a potentially better deal and save money.
To that effect, using an open banking-enabled money management app can come in handy in this case and save you from the worry of forgetting when to shop around and from the hassle of fumbling around for benchmark details of the incumbent provider and last payment.
How can iSpent19 help you get the best home and car insurance deal?
Before making a meaningful comparison to alternatives it’s fundamental to know when your policy is due for renewal, do research on the various car and home insurance providers and get acquainted with the financial regulations in the UK. To begin with, iSpent19 as a convenient and easy-to-use money management app can greatly help in your search for a better car or home insurance deal. Here are some of its features that can simplify the process of shopping around for insurance.
1. Set reminders to shop around on time
One of the most important features that the iSpent19 app can offer is the reminder setting. With so many subscriptions and monthly or yearly payments, it is difficult to remember all renewal dates. It is advised to set a reminder at least one month before your car and home insurance is due for renewal so that you can have enough time to explore options.
2. Keep track of how much you were previously paying
Since April 2017 the FCA requires all insurance companies to inform their policyholders of any changes in premium rates in the renewal letters. According to this regulation, the insurers are obliged to disclose the previous year’s premium rate at each renewal, thus allowing you to compare pricing and understand the difference in rates.
The good news is that you don’t need to wait for the renewal letter to arrive if you have the iSpent19 app installed on your phone. With its tagging feature, you can keep track of all your previous transactions and get an insight into how much you’ve paid and even search through the years back. Simply personalise a tag e.g. ‘Car Insurance’ to the relevant transactions and attach any key policy documents in order to have the relevant details to hand and make a meaningful comparison.
Another advantage of having your payment details handy via your iSpent19 App rather than only relying on last year’s premium amount from the renewal letter is that you are confident in the total amount you actually paid, which may include any fees that are not classified as premium, hence not necessarily disclosed in the renewal letter.
3. Take notes that will help you jog your memory
Another useful feature that iSpent19 has is the option to add a note to each transaction you make.
For instance, you can add a note to all your monthly or yearly insurance transactions with details on why you opted for that insurance policy in particular or details of installments expected. Why not also include some quick notes about some compelling features provided by other quotes that you would like to bear in mind in renewals or the discount/cashback you need to claim later.
All such details will enable you to make an accurate or quicker comparison on renewals. This feature allows you to capture these details in a personalised manner directly to the relevant transaction making your renewal process a walk in the park!
What should we expect in the future for insurance renewals?
It is too early to tell how individual car and home insurance providers may implement this announced regulation. Many would agree that it is a favourable shift for more consumer protection that will reward loyalty instead of penalising it. Surely, it would be interesting to see the impact on every customer’s immediate next renewal to understand how the industry collectively deals with this shift.
In conclusion, it may still be worth shopping around despite the potential that lucrative cheap deals might be more difficult to find as a result of the FCA ban. Even the net effect might be that the entire insurance industry is more aligned among its players in pricing, which may lead to a decision to stay put with the incumbent current insurance provider, it would not be a bad idea for two reasons. A. time saving on searching for a materially better deal. B. It would encourage insurers to innovate more to come up with other ways to entice new customers rather than just pricing, which is always a good thing for consumers.
Irrespective of the direction of a change, what is consistently for sure is that having the right means to personalise your mundane insurance transaction via a handy money management app such as iSpent19 will make your life easier when the time comes around for renewal. Simply less stress faffing about and more mental freedom. Isn’t it why Google was created originally – finding information fast? Speaking of finding information fast, have you tried our powerful search and filter feature to find any transaction you have incurred? Not yet? Download iSpent19 on iOS or Android mobile phone today to search and organise your payment-related transactions in a more simplified and interactive ways.