UK ‘price walking’ clampdown prompts fall in insurer switches

The proportion of people in the UK deciding to switch personal insurer has fallen to its lowest level in more than a decade, according to new data, as a major regulatory intervention on pricing reverberates through a market relied upon by households across the country.

Under new rules imposed by the Financial Conduct Authority that came into force in January, home and motor insurers must offer the same price to renewing customers as they would receive as a new customer. This abolished a practice known as “price walking”, where consumers were brought on at low prices and then had their premium raised at each annual renewal.

By eliminating undue price rises, the reform has removed some of the impetus for customers to jump ship from one insurer to another, with big providers such as Aviva reporting falling renewal prices since the start of the year.

According to survey data from analytics group Consumer Intelligence, 35 per cent of people whose motor insurance came up for renewal between January and March decided to switch provider, down 6 percentage points since the reform. For home insurance, it was 29 per cent.

Consumer Intelligence said the findings suggested that switching activity and shopping around for quotes was at its lowest since it began collecting the information in 2008.

The fall in switching activity had “taken the industry somewhat by surprise”, said Rodney Bonnard, UK insurance leader at consultancy EY, adding that one factor was the decline in motor and home insurance prices because of the effects of the pandemic.

He said there could be an uptick over the coming months as cost of living pressures rise and rates increase, but added: “Over the long term and as more and more people recognise that insurers now have to offer fair pricing to both new and existing customers . . . we expect consumer behaviour to change and for switching levels in the sector to fall permanently.”

Michael Miskelly, insights manager at Consumer Intelligence, said the group had expected to see “an initial spike in shopping and for it to tail off over the longer term”.

“It seems customers are beginning to welcome lower insurance premiums, which could correlate with pressures from the rising cost of living,” he added.

The fall in switching does come from a high base, as the UK has long had higher levels than in other developed countries. Some big insurers also toned down marketing efforts in the first three months of the year, partly because of concerns over inflation.

However, James Daley, managing director at consumer group Fairer Finance, said the drop in switching was “bad news on many different levels”.

“A less active market will make it easier for insurers to hollow out their products and to edge up prices,” he added.

The FCA said in a statement the fall in switching activity could be down to factors including “consumers now feeling more confident as a result of our rules that they are getting the same price a new customer with the same risk profile would get”. It continues to encourage people to shop around.