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Drivers and homeowners could pay £200 less for insurance when they renew under plans from the financial watchdog to ban firms from unfairly hiking prices.
Many insurers entice new customers with discounted premiums, then raise their prices every year punishing those who stay.
However, the Financial Conduct Authority (FCA) has announced plans to ban or restrict this practice, known as “price walking” or the “loyalty penalty”.
The FCA said around six million policyholders are overpaying around £1.2bn a year due to this method, with consumers being charged £200 more than they should be on average.
Gareth Shaw of Which? said: “It is right that the regulator is proposing solutions to stop these sharp pricing practices.
“Existing insurance customers can be left paying hundreds of pounds more than new customers as a result of complex and opaque pricing systems.”
Insurers raise prices the most for the customers that are least likely to shop around. One in three customers overpaying for cover are classed as potentially vulnerable, such as being elderly or lacking financial financial knowledge.
Those with home insurance policies that renew automatically are the most affected, suffering the highest increase every year. However, the watchdog said it found no evidence of this happening with car insurance policies.
Christopher Woolard, of 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.”
The regulator’s plans could force insurers to offer renewing customers the cheapest possible deal. It has also suggested banning discounted premiums for new customers, which could be a blow to those who shop around.
The FCA will make a decision in the first three months of next year.
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