Car insurers are continuing to punish loyal customers with price hikes despite a massive drop in the number of road accidents and rules banning the practice coming in later this year.

Claims dropped by a fifth last year as cars sat idle on driveways. As a result, the cost of a new insurance policy has fallen to a four-year low.

However, insurers are still sneaking up prices for long-term customers when they renew their policies. Some four in 10 car insurance customers saw their bill increase in the last three months of 2020, with an average annual rise of £49, according to comparison site Confused.

The practice, known as a “loyalty penalty”, is expected to be banned from July after the financial watchdog found it unfairly penalised long-term customers. A ban would see policyholders who renew pay no more than new customers buying the same protection.

James Daley of consumer group Fairer Finance said: “It seems like a number of insurers have decided to take advantage of the current pricing flexibility, before the City watchdog, the Financial Conduct Authority, clamps down on it.

“Given that last year was a bumper year for motor insurers, it’s impossible to justify an increase in premiums. The FCA should hold insurers to account where if they are pushing through disproportionate price increases.”

Insurers have been known to gradually increase renewal prices for policies above any increase in risk. Known as “price walking”, the strategy has racked up large bills for anyone sticking with their provider year after year.

The Association of British Insurers, a trade body, said that although motor claims fell last year, the average cost of a claim rose due to increased vehicle repair costs.

An ABI spokesman said: “As we edge back to some form of normality, cost pressures remain, such as increasing vehicle repair costs, reflecting ever more complex vehicle technology.”

More than six million customers overpaid on policies in 2018, according to the regulator. It estimated consumers stand to save £3.7bn over 10 years when the ban comes into force.

Louise O’Shea, of Confused, said: “We know from our research that insurers are still putting up renewal prices for some drivers. Even if the increase is small, please don’t settle for this as there will be an insurer out there willing to offer a better price.”



ByWill Kirkman18 March 2021 • 6:00am