Motor and home insurance customers will stop paying a “loyalty penalty” when their deal comes up for renewal from January 1.
New rules mean that insurers will be required to offer renewing customers a price that is no higher than they would pay as a new customer.
But those who regularly shop around for a cheaper deal, who are often younger customers, could end up paying more, with discounts potentially becoming smaller.
Many firms have increased prices for existing customers each year at renewal in a practice known as “price walking”. This has distorted the market as new customers may have been offered below-cost prices by firms to attract them in and then ended up paying more over time if they renewed their insurance.
Regulators have found that millions of customers were being unfairly charged higher prices, including an extra £1.2 billion in 2018 alone.
Mr Lewis wrote: “My best guess is firms won’t just cut renewal prices to match those for newbies – rates will meet nearer the middle (as happened in 2012, when insurers were barred from gender price discrimination). This will mean savings from switching will likely relatively reduce.”
Giving general tips for finding insurance on the website, Mr Lewis said that timing matters when buying insurance – and 23 days before renewal is the “sweet spot” for car insurance, while for home insurance it is 21 days.
He also suggested checking at least two comparison websites; comparing these deals to Direct Line and other deals that comparison websites do not include; seeing if a multi-car policy would be cheaper; and checking cashback websites.
People may also want to try haggling with their existing provider and seeing if comprehensive cover could be cheaper than third-party motor insurance, he suggested. Some insurers will view customers as lower risk if they opt for comprehensive motor cover.
Those struggling to find cover may also want to check the British Insurance Brokers’ Association’s website at insurance.biba.org.uk/find-insurance.
The Financial Conduct Authority (FCA), which has introduced the measures, has said they are likely to bring an end to unsustainably low-priced deals to some customers.
But officials said that overall, people will save £4.2 billion over 10 years.
The new rules will also make it easier for customers to cancel automatic renewal of their policy and require insurance firms to do more to consider how they offer fair value to their customers.
Insurers will also have to send data to the FCA so the regulator can monitor the market more effectively.
Sheldon Mills, executive director, consumers and competition at the FCA said: “Our interventions will make the insurance market fairer and make it work better. Insurers can no longer penalise consumers who stay with them. You can still shop around and negotiate a better deal, but you won’t have to switch just to avoid being charged a loyalty premium.
“We are keeping a close eye on how insurers respond to our new rules, to ensure that the benefits of a better insurance market are delivered to consumers.”
The impact of the shake-up will be reviewed in 2024.
The Association of British Insurers (ABI) believes firms will still be able to offer competitive deals to new customers, with a range of different policies at different prices, albeit that prices could increase for some who shop around regularly.
Previous research by the ABI found motorists paid £429 on average for a policy in the third quarter of 2021 – marking a fall of nearly £40 (£39.47) during that year.
Fewer claims made during the coronavirus lockdowns have helped to keep motor insurance costs relatively low, although there are pressures around repair costs.
Malcolm Tarling, spokesperson for the ABI, said: “These significant rule changes mean that when existing home and private motor insurance customers renew their insurance policy, the price charged by their insurance provider cannot be more expensive than the price that they charge to an equivalent new customer for the equivalent policy. These rule changes will lead to a re-balancing of premiums between new and existing customers.”