Two years after the Financial Conduct Authority (FCA) banned preferential pricing for new customers, drivers are still commonly only finding their insurer’s best prices when they check what it’s offering new customers.
In January 2022, the FCA banned car and home insurers from using your loyalty against you in their pricing. All else being equal, insurers must charge you the same price whether you’re a new customer or have held the same policy for years.
But new Which? research has revealed that half of customers who approach their existing car insurer as a new customer find a better price.
Drivers offered lower prices when posing as new customers
Car insurance premiums have rocketed to unprecedented highs in 2023. Industry trade body the Association of British Insurers reports that the average premium between July and September was £561 – 29% more than the same time in 2022 – that’s around £126.
In a survey of 1,992 UK policyholders, six in 10 drivers we surveyed told us their premium went up when they last renewed or switched – one in seven said it rose ‘significantly’.
When we asked drivers what research they’d done after receiving their insurer’s renewal offer, one in five said that they checked the quotes it gave if they applied as a new customer for the same cover.
Some 51% of these said they were offered lower prices when doing this. This suggests that nearly two years after the ban’s implementation, there’s still an advantage to being a new customer or posing as one.
- Find out more: How to find cheap car insurance
Loopholes in the loyalty penalty ban
Loopholes in the ban mean that your renewal offer won’t necessarily be the best price your insurer can manage. If you’re renewing a policy bought over the phone, you might do better if you instead cancel and buy online. If you bought directly online, cheaper versions of your policy could be available on comparison sites.
This is all because the ‘channel’ you buy through impacts the price (comparison sites are often cheapest). The time and date a quote is generated also have an effect, making it impossible to exactly compare your renewal price to a new customer’s – and therefore to know for sure if your insurer is obeying the ban.
The FCA has had to crack down on some firms it found hadn’t complied. Direct Line Group, for example, recently agreed to pay an estimated £30 million to some renewing customers who’d been incorrectly overcharged – which it blamed on a systems error.
When we shared our findings with the FCA, it said: ‘While firms have a duty to ensure renewing customers are offered a fair price, we’d still advise people to shop around to get the best deal. We have taken action where we have seen firms not meeting the rules, and we’ll continue to do so.’
The regulator plans to carry out a full evaluation of the effects of the loyalty penalty ban in early 2024.
- Find out more: Best car insurance providers
Why premiums are rising so steeply
Drivers were paying record-low premiums in 2021, when lockdowns drastically reduced driving levels and the cost of claims to insurers. But premiums are now substantially higher than even before the pandemic.
The top reason insurers give for hiking premiums is ‘claims inflation’ – rising costs associated with paying claims, such as spikes in the prices of second-hand cars, energy costs and supply chain shortages.
These supply chain shortages lead to claims taking longer to resolve, which means insurers need to spend more on temporary replacement cars.
The drivers paying the most
In our survey, the drivers who reported paying the most for their insurance included Londoners, young drivers, drivers paying in monthly instalments and those who’d made more than one claim.
However, as a group, older drivers were the most likely to say their prices had gone up – with two thirds saying their price had increased, and a fifth describing the increase as ‘significant’.
In September 2023, we surveyed 1,992 car insurance customers. a The majority of drivers in each group were paying above this amount. b Figures show total amount paid across the year.
How to get a better price
Insurers can also give preferential prices to customers who negotiate. Two-thirds of customers we surveyed who had renewed with their insurer had contacted their provider to discuss its premiums.
When we asked five major insurers if they were receptive to haggling, none ruled it out. Admiral said that ‘if our customers contact us at renewal because they’ve received a cheaper quote elsewhere or are unhappy with their initial renewal offer, we will check to see if there is any discount that can be applied to keep the customer with us’.
Hastings Direct also began with the disclaimer ‘we don’t reduce prices just because a customer asks us to’, but went on to explain that ‘if a customer has found a cheaper price online and gives us a call, we’ll always consider that and, in some cases, may be prepared to reduce the renewal price’.
Despite insurers’ reluctance to promote it, the good news is that haggling is highly effective. Seven in 10 renewing drivers who haggled got a discount – and importantly, most of these had succeeded without also needing to ditch parts of their cover or increase their excess.
Most saved up to £40 on an annual premium – but others saved much more. For one in eight, getting in touch resulted in savings of more than £100.
4 secrets to haggling success
Few of us enjoy the prospect of picking up the phone for a spirited debate with an insurer about its prices. However, most people in our survey who haggled found it both effective and easy – which is why we think it’s a no-brainer if you’re unhappy with your premium.
1. Do your research
If you’ve found better prices elsewhere (try comparison sites) for comparable cover, you have leverage. Those in our survey who had checked what quotes their insurer offered new customers were especially primed for haggling success.
2. Phone up
Calling the insurer was the most popular and successful way to haggle in our survey.
3. Be polite
Negotiating your renewal shouldn’t be an adversarial process. Ask the insurer to explain the premium increase, ask if it can do better and describe any better deals you’ve found elsewhere.
4. Say that you’re considering leaving
If your insurer can’t give you an acceptable price, say that if that’s its final position, you’d like to cancel the policy. Insurers’ cancellation departments can sometimes offer reductions to retain your business – even if you’ve been refused discounts beforehand when haggling.
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.