FCA price-walking reforms impact premiums

UK Financial Conduct Authority (FCA) rules to tackle “price walking” practices disadvantaging loyal customers have instigated the biggest one-month jump in home and motor insurance premiums in more than eight years, data analytics firm Consumer Intelligence says.

The average premium for home insurance jumped 9.1% in January to £154 ($276), while motor rose 4.9% to £705 ($1264), based on indices that reflect movements across the big four price comparison websites and key direct insurers.

“We fully expected premiums to rise as a result of the new pricing regulations, it was simply a question of how much,” Consumer Intelligence market insight expert Michael Miskelly said.

“We also predicted the larger increase in home insurance. Up until now, the home market has been a beneficiary of high levels of loyalty, but also prone to more extensive price walking.”

The company’s previous market updates, published towards the end of last year, showed the cost of insurance at that time was falling an average 8.2% year-on-year for home owners and 7.6% for drivers.

The large January increase was a one-time step change, signifying the industry’s move to become compliant with the news rules, with premium fluctuations at brand level expected over coming months as provides jostle to find their place in the new competitive landscape, Mr Miskelly says.

The FCA rules that came into effect from January 1 prevent dual pricing practices that involve increasing premiums for existing policyholders at renewal over years, while below-cost offers are made to attract new customers.

GlobalData says the difference between the lowest average and the highest average of the 10 cheapest quotes provided by the four leading price comparison websites has diminished significantly since the FCA pricing rules were introduced.

Price disparity in the motor line has fallen from 45.3% in 2020 to 12.3% this year, while in home the disparity has fallen from 44.5% last year to 9.2%.

GlobalData Insurance Analyst Benjamin Hatton says the FCA rules have limited the extent to which providers can undercut rivals to win new business. The research also finds that average quotes for home insurance are slightly lower this year than previous years.