INSURANCE firms are being investigated over fears they rip off customers who loyally stick with the same providers.
Prices for home and car insurance policies will be scrutinised to see if millions of British people are being unfairly charged.
Britain's financial markets regulator the Financial Conduct Authority (FCA) is launching the study - weeks after Citizens Advice revealed that millions of people are being overcharged up to £4billion a year for loyally sticking with insurance, mobile phone, broadband, mortgage and saving account providers.
The new investigation could potentially pave the way for stricter rules or even caps - after a price cap was introduced for energy firms to help put an end to sky-high gas and electricity bills earlier this year.
The FCA said it was concerned customers are being "harmed" by general insurance policy prices, which includes home and car insurance.
Experts have welcomed the study, which will be published by the end of 2019 - but warned customers not to rely on any "silver bullet" measures offered up by the FCA next year to cap prices as it would not bring down bills overnight.
Andrew Bailey, the FCA’s chief executive, said of the study: “Our initial work has identified a number of areas of potential consumer harm.
"We want to make sure that general insurance markets deliver competitive and fair prices for all consumers.
"This market study will help us examine the outcomes from general insurance pricing practices and inform how, if necessary, we should intervene to improve the market.
“If change is needed to make the market work well for consumers, we will consider all possible remedies to achieve this.”
Eight-two per cent of UK adults - or nearly 55 million people - hold general insurance policies, according to the FCA’s Financial Lives Survey, with home and motor insurance being the most common.
How to cut the cost of home insurance
IF you're looking to cut down your home insurance bill, follow our tips:
- Buy 21 days in advance - Purchasing a policy three weeks in advance can cut your bill in half. Buy 30 days in advance it could cost you hundred because there aren't as many policies out there. Taking out a policy too late and insurers will deem you a higher risk and whack up your premium.
- Never accept a renewal quote - Your policy could double overnight if you're not careful. Make sure you put a reminder in your phone of when it's up and shop around for a better deal.
- Check more than one comparison site - These sites offer different deals so it's best to look at more than one site at the 21 day mark to see what they can offer.
- Check Direct Line and Aviva separately - Two of the biggest companies aren't on comparison sites so you'll need to check them too to see if they can offer you a better deal.
- Don't wait for a renewal - If you find a better deal elsewhere, you can cancel your existing policy and get a refund for the rest of the year. There will be a fee though - usually £50 - so take that into consideration when you look at how much you can save.
- Increase your excess - If you choose to pay a higher excess, you’re premiums will drop. Be warned though – if you have to claim, it’ll cost you more, so don’t sign up for anything you can’t afford.
- Pay annually - Monthly instalments mean you can spread the cost of insurance, but they come at a cost. Pay in one go to save more. This trick works on your car insurance too. We found you can save as much as £440 a year by paying car insurance bills annually.
- Split it up - Sometimes it can be cheaper to go to different providers for your buildings and contents insurance. Check to see if splitting can save you money.
- Lock up - Keeping on top of security and maintenance often leads to lower premiums. Easy steps such as installing burglar alarms, fitting secure locks, and joining a neighbourhood watch can all lead to lower premiums.
It comes after Citizens Advice warned that households are paying a "loyalty tax" for sticking with the same providers to the tune of £877 a year per household - or about 3 per cent of the average household’s total annual spending.
Gillian Guy, chief executive of Citizens Advice, said: "We knew insurance companies were penalising loyal customers, but it is shocking that the FCA has found many companies don’t even seem to have oversight of how much they’re charging customers."
She added: "We now expect strong regulatory action to stamp out this problem and enforcement against firms who are overcharging loyal customers."
Tom Flack, editor-in-chief at MoneySuperMarket, commented: "We welcome anything that reduces prices for long-suffering customers who have been penalised by staying with the same provider."
He added: “But there’s no ‘one size fits all’ approach and even if any new measures were embraced enthusiastically by insurers, it would not bring down bills overnight.
"People shouldn’t get lulled into a false sense of security that this is some sort of silver bullet.
“Shopping around using a price comparison site at the point of renewal is essential if customers want to be sure they’re getting the cheapest deal."
A recent study by GoCompare found that 65 per cent of drivers renewed their car cover with their existing insurer in the last 12 months and that 38 per cent did it out of loyalty.
Georgie Frost, consumer advocate at GoCompare, added that loyal customers are being punished with "tease and squeeze" deals that hook them in with a competitive price before being hit with huge premium increases.
She said: "We welcome any investigation into this area because clearly something isn't right and people feel they are being ripped off.
"Clearer rules and regulations will be better for everyone because we can't have a system where it is the most vulnerable that are the hardest hit."
The FCA said it will publish an interim report with potential measures to help customers in summer 2019 before publishing a full report by the end of next year.
An energy price cap was approved by MPs in July after energy regulator Ofgem launched a similar crackdown on sky-high energy prices.
Meanwhile another FCA investigation resulted in hundreds of thousands of people saving money after it announced plans to cap rip off rent-to-own fees.
The FCA's newest study into rip off insurance policies comes after an investigation this summer found that loyal customers pay up to £132 for their home insurance than if they took out a policy with a new provider.
There are ways to cut the cost of your home insurance - including taking out a new policy three weeks before your renewal date, which can slash the price by 20 per cent.
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