Insurers to tackle premium penalty for loyal customers

The Association of British Insurers (ABI) and British Insurance Brokers’ Association (BIBA), have launched a set of principles and action points to crack down on the the issue of loyal customers potentially paying excessively more on renewal than new customers.

The plan applies to products such as home, motor and travel insurance and the approach will be built into firms’ procedures for determining the premium at renewal.

Pet and health insurance are not included as many products provide cover at renewal for medical conditions that arose since the inception of the policy, the associations said.

The announcement comes after new rules requiring firms to display the previous year’s premium on renewal notices.

According to Citizens Advice, longstanding home insurance customers can pay £110 per year more than new ones.

The associations’ members will review their pricing approach for customers who have been with them longer than five years and assess whether their approach delivers a fair outcome.

Firms will make it clear at the outset to customers if the new premium includes any introductory discount for the first year, and that subsequent renewal premiums may be higher.

The ABI and Biba will publish a report in no more than two years showing actions taken to tackle excessive premium differences.

Each company will put the principles into action in their own way, those behind the plan said.

Gillian Guy, chief executive of Citizens Advice, said: “Today’s announcement shows the industry recognises the scale of this problem and is willing to act responsibly to stop consumers being penalised for their loyalty.

“Our research found that longstanding home insurance customers can pay an average of £110 more a year than new customers.

“The devil, however, will be in the detail - whether this is successful will depend on prices actually coming down for loyal customers.”

ABI chairman Andy Briggs said: “These new guiding principles and action points are a positive initiative by the ABI and Biba members to demonstrate that the whole industry recognises this is an important issue that needs to be addressed.”

Lord Hunt of Wirral, chairman of Biba, said: “I am so delighted that insurers and brokers have come together for the benefit of our established and loyal customers, setting out a positive path forward on renewal pricing.

“I would encourage everyone within the wider market to join with us in adopting these guiding principles and action points.”