The City watchdog, the Financial Conduct Authority (FCA), has officially opened a new investigation into several major UK insurance providers. The probe centres on whether these firms are unfairly penalising long-standing customers by charging them higher premiums than new clients.
While the FCA has not publicly named all the firms under scrutiny, it has confirmed that giants like AXA and Churchill are part of the investigation. This action follows a 'super-complaint' by Citizens Advice back in 2018, which first highlighted the issue of the so-called 'loyalty penalty'.
What is the 'Loyalty Penalty'?
This practice involves insurers offering attractive, low introductory rates to new customers, while quietly increasing the premiums for existing customers each year when they renew their policies. This means that customers who remain loyal to the same insurer often end up paying significantly more for the same level of cover.
The FCA has expressed serious concerns that this may disadvantage consumers who are less likely to switch providers, potentially including older or more vulnerable individuals.
The FCA's Stance and Potential Outcomes
Sheldon Mills, the Executive Director of Consumers and Competition at the FCA, stated, "We have been clear that firms must tackle the issue of unfair price walking and ensure they are providing fair value to their customers."
The investigation will determine if the insurers have breached FCA principles and rules. If found guilty, the consequences for the firms could be severe, including:
- Substantial financial penalties imposed by the regulator.
- Mandatory redress payments to customers who were overcharged.
- Reputational damage and a requirement to change their pricing practices.
This move is part of a broader crackdown by the FCA on unfair practices within the financial services industry, with a strong focus on consumer protection.
