U.K. Home, Car Insurers May Face Curbs on Yearly Price Hikes
(Bloomberg) -- U.K. home and car insurers could be stopped from jacking up prices when customers’ policies come up for renewal as the country’s financial-markets watchdog clamps down on an industry that’s not giving a “good deal” to about 6 million customers.
Companies such as Aviva Plc, Admiral Group Plc and Hastings Group Holdings Plc could also face curbs on automatic policy renewals and stricter rules on how they communicate with customers, the Financial Conduct Authority said on Friday. If policyholders who currently pay high premiums instead paid the average amount for their insurance, they would save 1.2 billion pounds ($1.5 billion) a year, according to an FCA statement.
“This market is not working well for all consumers,” Christopher Woolard, executive director of strategy and competition at the FCA, said in the statement. “While a large number of people shop around, many loyal customers are not getting a good deal.”
Shares in some so-called general insurers initially declined on the news in London trading before paring losses. Saga Plc, which provides home and car insurance to people over the age of 50, fell as much as 12%.
Insurance companies often offer low introductory prices to attract new customers, only to increase those prices significantly when the policies come up for renewal, the FCA said. Many people use switching services to move to a different company as soon as their premiums increase, but some customers, especially older ones, are less likely to switch and end up paying much higher premiums for the same amount of cover.
“We expect that those firms more focused on switching will be better placed to adjust to the new rules than those with a more traditional customer-acquisition model, though overall any additional regulatory oversight on pricing is likely to be negative for profitability in the industry,” Shore Capital Group Ltd. analyst Paul De’Ath wrote in a note.
In addition to fixes for high premiums and practices that discourage customers from switching firms, the FCA said it may make firms “automatically move consumers to cheaper equivalent deals.” The regulator plans to publish a final report on its study of the general insurance market as well as proposed rule changes in the first quarter of next year.
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