New rules are to be introduced to prevent auto and home insurers from imposing so-called fidelity penalties on customers, the financial regulator has announced.
The Financial Conduct Authority (FCA) said it was cracking down on unscrupulous companies to end the practice of offering existing customers higher deals than new ones.
Regulators found last year that millions of customers were wrongly billed higher prices, including an additional £ 1.2 billion in 2018 alone.
Insurers must offer new customers a price that is no higher than they would pay as a new customer.
But if you are regularly looking for a cheaper offer, which is often younger customers, you could end up paying more, and the discounts become smaller and scarcer.
Martin Lewis has urged drivers to review their insurance as the changes could result in higher rates in the coming months.
He said: “As the new regime begins in January, insurers will likely begin changing their pricing algorithms in advance – we believe there are even signs of it now (however, the data is inconclusive).
“This likely means that the cheapest prices are disappearing quickly for those who compare and switch.
“So I would recommend anyone check out their auto and home insurance as soon as possible to see if you can cut costs by grabbing cheaper exchange offers before things change.
“Even if you’re not in the process of renewing, it may be worth moving now if you can make significant savings to get the cheaper rates.
“As long as you haven’t made a claim, you can usually (review) cancel your existing policy for an administration fee of £ 50 and get a prorated refund for the remainder of the year (even though you have this year’s no claims).”
The FCA acknowledged that the changes would likely end unsustainable cheap deals for some customers.
However, officials said that total consumers will save £ 4.2 billion over 10 years.
Many companies increase prices for existing customers each year in renewal in a practice known as price walking.
The FCA said, “This means that consumers will have to shop and switch every year to avoid paying higher prices for their loyalty.
“It also distorts the way the market works for everyone. Many companies offer low prices to attract new customers.
“They also use sophisticated processes to get the best offers to customers who they believe they won’t switch in the future and will therefore pay more.”
