Majority of Consumers Experience Price Increases on Renewal

Research published by the Financial Services Consumer Panel reveals that the majority of consumers experience a price increase for their insurance renewal across products, but that 85% of consumers who negotiated with their existing provider on their car insurance renewal price secured a reduction.

The Panel’s research explored customer experiences when renewing existing insurance contracts for car, home and travel insurance across a nationally representative sample of 2,000 consumers, evaluating how renewal prices compared to the previous year, customers’ responses, and outcomes they experienced.

Findings revealed that most of the consumers surveyed experienced a price increase for their insurance renewal across products, with 80% being offered an increased premium for car, 72% for home, and 51% for travel insurance. The research also indicated significant price hikes for consumers, with average increases of 27% for car, 22% for home, and 13% for travel insurance.

In the top quartile (top 25%) by premium increase, those renewing home insurance experienced an increase of at least 31%, with the average being 72%, and customers in the top quartile renewing car insurance encountered an increase of at least 40%, with the average for this group being 74%.

The research highlighted that negotiation was an effective but underutilised tactic; 85% of consumers who negotiated with their existing provider on their car insurance renewal price, and 81% negotiating home insurance, securing a reduced price. However, negotiation was also found to be the action customers would be least likely to take.

By implication, concerns have been raised about whether initial premiums offered at renewal represent fair value, as consumers who may be unwilling to negotiate price, unaware it is an option, or less capable of negotiation, potentially due to vulnerabilities, may be overpaying relative to those who did and could negotiate.

The findings may therefore suggest that price and value are contingent on the consumers ability to negotiate with insurers, that insurers are obstructing financial objectives and fairness, and that vulnerable customers may be more likely to experience disproportionately poorer outcomes as a result.

Predictably, the research found that the average customer satisfaction with renewal price decreased as the level of premium increased. However, notably, customers who negotiated a reduced renewal price were the least satisfied of all, suggesting that the realisation that their original renewal quote did not represent value for money negatively impacted view of their insurer’s pricing.

Aside from dissatisfaction, the report risks consumers losing trust in their insurers and perhaps doubting the value for money offered by insurance, especially when many face financial strain due to inflation and cost of living crisis. Nonetheless, the findings should prompt a critical reflection and reassessment of the value of initial renewal quotes and the implications for customers who do not, or cannot, negotiate.

In a paper published following the report, the Panel called on the FCA to act to ensure consumers renewing insurance receive products designed to meet their needs, characteristics and objectives, are able to achieve a good outcomes without having to shop around, negotiate or change their cover.

The Panel also urged the FCA to ensure that firms support consumers, especially those who are vulnerable, in making informed decisions, and increase transparency around data fields used to determine insurance premiums.

Helen Charlton, Panel Chair commented: “It is important that consumers, including vulnerable consumers, receive suitable products, are supported in making informed decisions and have all relevant disclosures available to them, especially when prices increase on renewal.”

She added that the Panel believed the regulator “should explore the consequences of high renewal pricing, such as increases in uninsured consumers, under-insurance, and the impact of increased switching.”

The Panel’s recommendations follow the FCA’s publication of General Insurance Value Measures data for the 2023, which the regulator noted “highlight[ed] some products that do not appear to be delivering fair value”, and Thematic Review – TR24/2, following which the FCA stated it was “very disappointed” to see many firms failing to fully meet their regulatory obligations under PROD 4, despite “extensive previous work and focus on this area”.