Insurers could face disciplinary action after the City watchdog said UK firms were not ready for stricter rules on price hikes on car and home insurance.
The Financial Conduct Authority said too many firms were failing to meet existing regulatory standards and were also unlikely to be prepared for tougher rules meant to ensure insurers offered better value for money policies to existing customers from this October.
The incoming rules are part of efforts to tackle the loyalty penalty – whereby customers who renew their insurance policies are charged higher premiums than new policyholders, who tend to be offered the best deals. The FCA has previously said the future ban on price walking – where insurers increase premiums every year regardless of the level of risk – would save consumers £4.2bn over 10 years.
In May, the FCA found that on average new customers paid £285 a year for motor insurance, while customers who had been with their provider for more than five years were charged £370, resulting in a 30% difference in costs. Loyal customers were charged 70% more on average for home insurance, with new customers paying £165 a year for buildings and contents cover, while after five years, premiums had increased to £287.
A review by the FCA published on Wednesday identified further shortcomings in governance and oversight of firms’ existing insurance products, and an “insufficient focus” on customers and product value.
“We know some firms are doing the right thing but with the deadline for implementing our enhanced rules less than two months away, it’s worrying that some firms may not be ready”, Sheldon Mills, executive director for supervision, policy and competition at the watchdog, said.
Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk
Mills said insurers that were failing to follow existing regulations were putting consumers at risk of financial harm, since customers could be sold inappropriate or poor-value products. “These firms have significant work to do urgently to be able to comply with the enhanced product governance rules. Firms that fail to do that work risk regulatory action,” he .
Gareth Shaw, head of money at Which?, said it was “extremely concerning” that many insurers were unable to demonstrate they were providing proper consideration to the consumer when designing or updating products.
“It is vital that the regulator keeps a close eye on insurance firms to ensure they don’t find new ways to exploit customers and should be ready to take further action where necessary,” he added.
The FCA said it had had already intervened in some cases and that it had the power to force firms to withdraw products, as well as refund or compensate customers as necessary.