| Insurer | Annual premium for renewing customer (£) | Insurer's cheapest new customer annual premium (£) |
|---|---|---|
| Direct Shield | 680.00 | 410.00 |
| CoverAll | 720.00 | 430.00 |
| SafeDrive | 640.00 | 390.00 |
| SurePath | 590.00 | 350.00 |
| Apex Policy | 550.00 | 320.00 |
Note: The highly competitive market entry premium for a baseline driver profile is approximately £290.00.
The Financial Conduct Authority (FCA) has introduced stringent rules to eliminate the practice of 'price walking', where renewing home and motor insurance customers are charged higher premiums year-on-year compared to new customers. This loyalty penalty has long exploited consumer inertia, particularly affecting older or less financially literate policyholders who tend to auto-renew.
The FCA's new rules mandate that insurers must offer renewing customers a price no higher than they would pay as a new customer. Additionally, regulators have proposed requiring more explicit, simple opt-outs for auto-renewals and standardising disclosure documents. Consumer protection advocates argue that these measures will save households hundreds of millions of pounds collectively, boosting allocative efficiency and equity.
However, industry representatives have warned of significant unintended consequences. A spokesperson for the Association of British Insurers (ABI) stated: "Banning price walking completely will distort pricing models. To compensate for the loss of profits from loyal customers, insurers will be forced to raise prices for new customers, effectively ending the cheap introductory deals that price-sensitive consumers rely on. This could reduce overall consumer search activity, dampening competitive pressure and potentially stifling investments in digital platforms and telematics technology that improve risk pricing."
Discuss methods of government or regulatory intervention to protect consumers within the motor insurance market. Refer to Figure 1 and Extract A in your response.
