Price walking is the practice by which existing home insurance customers are offered higher relative premiums compared to new customers. Sounds unfair? Well, that’s why it’s changed!
Following a study of pricing in the General Insurance market in late 2020, the Financial Conduct Authority (FCA), the UK financial regulator, announced proposals in May 2021 to tackle the issue of price walking in the home and motor insurance markets. These proposals came into effect 1st January 2022 meaning existing customers will no longer pay disproportionately higher premiums.
Home insurance is a type of general insurance policy and policyholders were therefore often subject to price walking. Buildings and contents insurance, used synonymously with home insurance, are the two types of home insurance products. Buildings insurance is a mandatory requirement when a property is mortgaged and contents insurance covers items in your home.
So why was price walking a thing and how could insurers get away with it?
The simple answer is because many people don’t take the time to shop around. While there were those who’d had a positive customer experience with a company so wanted to stay, this will have accounted for a small minority of renewals. Typically, renewals came from those who were confused over what to do, weren’t bothered to save the cash, simply forgot or were too busy to sort it out. Insurance companies were taking advantage of the above by inflating the prices of renewal premiums. The process of determining renewal premiums became a fine balancing act between not being too high that it would make people think to move whilst being as high as possible to maximise revenue from existing customers. Companies could get away with it as it was in their interest to do so and there was no regulation to say they couldn’t.
While using a broker to arrange a mortgage is the norm, using a broker to arrange home insurance is not yet so common. The general insurance market is much more price orientated due to the reduced complexity of the products. Because of this, price comparison sites have always been the common place to go. However, the loss-leading model adopted by price comparison sites where people are enticed by low initial premiums before huge price hikes at renewal stage will likely have to change. With the gap between initial premiums and renewal premiums closing, higher initial premiums across home insurance policies are to be expected.
We work with a company who specialise in arranging comprehensive home insurance policies at affordable prices. They not only arrange the initial cover, but they will contact you to arrange the annual renewal so that you’re always getting a competitive price. If you’d like a quote for buildings and contents cover, get in touch and we can pass your details over to our specialists.