The financial watchdog said that competition isn’t working well for consumers in the home and motor insurance markets.

The Financial Conduct Authority (FCA) published a report into both of these general insurance markets, setting out its concerns about how consumers don’t switch, paying high prices for their insurance.

The regulator estimates that around six million policyholders pay high prices and are not getting a good deal on their insurance.

It worked out that, if those customers paying high premiums paid the average premium for their risk, they could save around £1.2 billion a year.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “This market is not working well for all consumers. While a large number of people shop around, many loyal customers are not getting a good deal.

“We have set out a package of potential remedies to ensure these markets are truly competitive and address the problems we have uncovered. We expect the industry to work with us as we do so.”

What the regulator found

• Insurers often sell policies at a discount to new customers and increase premiums when customers renew, targeting increases at those less likely to switch.
• Longstanding customers pay more on average, but even some people who switch pay higher prices.
• One in three consumers who paid high premiums showed at least one characteristic of vulnerability, such as having lower financial capability.
• People who pay high premiums are less likely to understand insurance or the impact that renewing has on their premium.
• Firms engage in a range of practices to raise barriers to switching.
• Many consumers who switch or negotiate their premium can get a good deal.

Addressing the problem

The regulator said it wants to address these problems. It’s already improved transparency on renewal for general insurance policies and it will make sure firms improve the oversight of their pricing practices.

Plus, it’s considering ways to tackle high premiums, stop practices that could discourage switching and make firms be more transparent in their communications.

The FCA intends to publish a final report in the first quarter of 2020.