The FCA (Financial Conduct Authority) has provided a further update on the work it is undertaking to tackle the ‘loyalty penalty’ faced by millions of financial services customers and other issues raised by the Citizens Advice super-complaint to the CMA (Competition and Markets Authority) in 2018.
GoCompare has been involved in the consultation and Lee Griffin, the CEO and one of the founders of the comparison website, comments on the latest update.
“We welcome this update from the FCA and the news that the regulator intends to publish a final report and consultation on remedies for the home and motor insurance markets within the first three months of 2020.
“In our dealings with the FCA we have provided further insight into the problem of loyalty pricing and the barriers to greater switching and suggested a series of remedies to help tackle the problem. It will be almost 18 months since the super-complaint by the time we have a final report and then there will be a further consultation, so in the meantime, the only option is to continue encouraging people to take responsibility for switching and saving.
“In our view, the quickest way to improve the situation for millions of general insurance customers is to reform the renewals process. While auto-renewal has a bad reputation, it is there to ensure people aren’t left without cover or inadvertently break the law. However, the renewal process should be reformed immediately and standardised to ensure that insurers treat customers more fairly.”
GoCompare’s five-point plan to improve insurance renewals
- Introduce a new 28-day cooling-off period for auto-renewals, rather than the current 14 days. During this extended period, the insurer should be required to take all reasonable steps to ensure that the customer is aware that they have been auto-renewed.
- Increase communication during this period, using a wider range of methods, including email, SMS and push notifications.
- Cancellation fees should be limited, if not banned completely, for customers who switch away during this extended auto-renewal cooling-off period.
- Action should be taken to ensure firms are much more transparent in their dealings with those customers who auto-renew. This should apply at the first instance of auto-renewal, but even more so from year two onwards. People who have auto-renewed several times are at risk not only of paying more than they should be but also of being on a policy that is no longer the best fit for their current needs. (This mirrors the recent rule change on pawnbroking loans, where those who keep renewing are given their items back after a certain number of renewals – Ed)
- The requirement for more transparency should also apply to all customer touchpoints – from insurers’ websites to Key Facts, policy wording, and other documentation and there should be a standard for transparency and the use of plain English.
Lee Griffin continued: “While these changes can’t solve all the problems caused by loyalty pricing in the insurance market, they could make a significant difference for millions of customers. Protecting vulnerable customers may only be achieved with a greater level of intervention, but that could take longer to agree.
“For real long-term reform, we need to look to harness the benefits of innovation and, as a tech company, we will continue to work with the FCA and others on the possibilities offered by initiatives such as Open Finance. But in the short to medium term, we need simple, achievable actions and improving the auto-renewal process further would be a huge step.”