Car insurance loyalty ‘doesn’t pay’ as drivers lose up to £400 a year through price rises
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Car insurance customers could be losing up to £400 a year in combined savings for home and motor insurance as prices continue to rise. Anna McEntee warned household finances were under heavier strain due to the coronavirus pandemic with many families not available to support any price rises.
She urged drivers that the simplest way to ensure they were on the most cost-effective deal was to shop around for a new policy.
The comments come as the Financial Conduct Authority (FCA) has announced it intends to end annual renewal price rises.
The FCA has wanted these areas were not “working well” for consumers as firms used “complex” pricing practices that allowed them to raise costs year on year.
Ms McEntree said: “The FCA’s final report underlines a truth about insurance, that loyalty doesn’t pay.
“The requirement to charge the same price to a renewing customer as a new customer, along with the requirement to provide more clarity at renewal, will help to lift barriers to switching.
“These are welcome remedies at a time when having access to better deals and being able to save money is more important than ever.
“Household finances are under ever greater strain due to Covid-19, and a substantial proportion of households are still missing out on combined average savings for home and motor insurance of nearly £400 a year.
“We believe that more could be done to alert people to these potential savings.
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“It is crucial that providers demonstrate transparency and try to educate and encourage their customers to take note of the fact that there may be more competitive deals available to them.
“While the FCA’s remedies should help improve the pricing problem, the simplest and most effective way to get the best deal is to shop around.”
In a radical new update, the FCA has proposed that when a customer comes to renew their car insurance they would pay no more than if they were new to their provider.
They say firms would be free to set their own prices for agreements but would not be able to slowly increase costs each year.
Usually, firms offer their best and usually discounted pieces to new customers in a desperate bid to get them to switch providers.
However, this is not usually the genuine cost of the agreement and firms use renewal items to increase charges back up to the usual amount.
But FCA analysis revealed the FCA does nor offer their lowest prices to those who regularly switch agreements meaning many lose out for simply taking advantage of the system.
Others are simply not aware of how the costs work and may believe it is simply an industry-wide increase.
The RAC said six million policyholders were paying high or very high margins in 2018 and could have saved £1.2billion if they paid the average for their level of risk.
Freddy Macnamara, CEO of insurance experts Cuvva said the movie was a “positive step” to treat customers more fairly.
He added: “The onus is on Insurers to act fairly and communicate more clearly with customers at renewal time.
“The FCA’s measures to prevent insurers from taking advantage of consumers based on their level of awareness of insurance are most welcomed and a great win for UK drivers.
“Insurance is complicated by nature, which makes it that much more important for the sector to be transparent with customers.
“It’s only fair that people know exactly what they’re committing to. That way, they’ll be better positioned to make informed decisions, especially when it comes to renewing their premium.”
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