The City regulator is considering action to address practices by home and motor insurance firms which discourage people from getting a better deal.
Here is a look at why it is considering these potential steps and what households could do in the meantime to cut their costs.
– What has happened?
The Financial Conduct Authority (FCA) has published its interim report into a market study looking at the home and motor insurance sectors. It intends to release a final report and consultation on remedies in the first quarter of 2020.
– What has the regulator found so far?
Home and motor insurance generated £18 billion in gross premiums in 2018.
But the regulator found complexity and lack of transparency around how firms set prices.
The FCA estimates that around six million policyholders pay high prices and are not getting a good deal on their insurance. If those customers paying high premiums paid the average premium for their risk they could save around £1.2 billion a year.
Around a third of those paying more than they need to are considered vulnerable in some way – such as having lower financial capability.
Most firms, when setting a price, include their expectations of whether a customer will switch or pay an increased price – but the FCA said this is not made clear to customers.
– What is the FCA considering doing to fix the problems?
Several potential remedies are on the table.
These include potentially banning or restricting practices like raising prices for consumers who renew year on year or requiring firms to automatically move consumers to cheaper equivalent deals.
The FCA will also weigh up the potential advantages of automatically renewing insurance policies. People who do not automatically renew may forget to buy cover.
– Do I have to have insurance?
While there is not a legal requirement to buy home insurance, mortgage contracts generally require borrowers to have buildings insurance. The sum insured must typically be enough to meet the property rebuilding cost.
Meanwhile, motorists are legally obliged to hold a valid insurance policy to cover third party risks.
– What can consumers do to drive down their costs?
It will be months before the regulator’s final report is released, so in the meantime it may be worth shopping around and using comparison websites or approaching other insurers directly to see if you could get a cheaper deal.
Even if you do not want to move providers, you could use quotes found elsewhere to try to haggle down the price with your current insurer.
Salman Haqqi, personal finance expert at money.co.uk, said: “Customers need to be disloyal to insurers…
“One of the best ways to get a better deal from your current insurer is to approach them with a more competitive offer from a rival, and ask them to match it.
“If your insurer isn’t treating you fairly, find another one that will.”