Loyal customers could save up to £200 a year on their car and home insurance after the City watchdog confirmed plans to ban the so-called loyalty penalty.
For many years, insurance firms have kept the best deals for new customers while charging existing policyholders more when they renew. Less financially savvy customers who do not shop around each year have paid more as a result.
The Financial Conduct Authority confirmed it will outlaw this practice from September, also known as “price walking”, and make it easier for policyholders to cancel the automatic renewal of their policy.
The watchdog estimated the reforms would save customers £4.2bn over a decade. Previously, the FCA found six million policyholders paid £1.2bn, or £200 each, more for home and motor insurance than if they had been charged the average premium.
The regulator will also bring in new rules to make it easier for customers to cancel the automatic renewal of their policy, which will come into force from January.
The FCA’s Sheldon Mills said: “We will be watching closely to see how the market develops in the future and to ensure firms continue to deliver fairer value to consumers.”