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By Huw Jones and Carolyn Cohn
LONDON (Reuters) – Britain’s Financial Conduct Authority said on Tuesday it was proposing to stop insurers from charging repeat car and home insurance customers more than new clients in a move it described as “radical”.
Insurers’ treatment of customers is under increasing regulatory scrutiny, adding to pressures on their bottom lines as they deal with costly claims caused by COVID-19.
The latest move comes just a week after the FCA successfully brought a test case over some business interruption policies.
The regulator said that when a customer renews their home or motor insurance policy they should pay no more than if they were new to their provider through the same sales channel.
“The FCA estimates that its proposals will save consumers 3.7 billion pounds ($4.73 billion) over 10 years,” said Christopher Woolard, the FCA’s interim chief executive.
The Association of British Insurers said insurers and brokers had already begun to tackle the issue of loyal customers being penalised.
But Sheldon Mills, Interim Executive Director of Strategy and Competition at the FCA, told a media briefing they had not gone far enough.
“This is a radical change we are putting forward today,” he said.
Consumer champion Citizens Advice said it was pleased the FCA was taking “strong action to crack down on this systemic scam”.
The FCA said it had identified 6 million policyholders paying high or very high margins in 2018, who could have saved 1.2 billion pounds.
The FCA is also proposing rules requiring insurers to consider how they offer fair value to customers over the longer term, and to report data to the watchdog so that it can check the new rules are being followed.
The proposals are being put out to public consultation until January, with final rules published next year.
Shares in motor and home insurers Admiral (L:ADML), RSA (L:RSA) and Direct Line (L:DLGD) fell 2-5%.
Insurers were also due by Tuesday to tell small business customers the implications of last week’s ruling that some of them were wrong to reject tens of thousands of claims from firms battered by the COVID-19 pandemic.
Woolard said the watchdog had not yet decided whether to appeal some aspects of the ruling. Insurers have also said they were still considering whether to appeal.