With vehicles returning to the roads in large numbers following the easing of coronavirus lockdown restrictions, experts are warning of a potential sharp uptick in car insurance premiums.
More cars means more accidents, and insurance companies will be swift to increase their prices if they are registering more claims.
But one outspoken industry figure – Freddy Macnamara of Cuvva, which offers temporary car insurance for as short a time as one hour – says car insurance is fundamentally broken and unjust. He is calling for swift remedial action from the market regulator, the Financial Conduct Authority (FCA).
At issue is the practice of dual pricing, where insurance companies charge existing policyholders more than new customers – known as the ‘loyalty tax’. Another tactic is ‘price walking’, where prices are inevitably increased each year.
Macnamara and other critics say insurers unfairly penalise customers already on their books by making them effectively subsidise marketing efforts to attract new business.
He said: “Dual pricing is completely unjust, and leaves customers worse off in the long run. The industry needs to prioritise the end of these unfair practices that pervade the sector. Fairer approaches need to be introduced that hero customers’ best interests.”
The FCA has long been aware of the issues surrounding dual pricing. In 2017 it introduced a number of regulations designed to encourage drivers to shop around more at renewal. But in 2019 it conceded more action was necessary.
In his report on the sector last year, he noted: “Companies are complex pricing practices that allow them to increase the value of consumers who renew with them year after year. This is called the value market place and the fact that corporations are doing so is not transparent to consumers. Matrix When we ask consumers for their views on the value of jobs, we found that if they are buying food or staying with their supplier, they think it is worth placing them on the market.”
The CFA was expected to publish the proposed responses in the first quarter of 2020, however, this was delayed through the focus on money market control of the coronavirus outbreak. But Macnamara says action is urgent, adding a limit to premium increases: “The FCA’s intervention is mandatory to ensure that insurers act calmly and talk more obviously to consumers at the time of renewal.
“Until the intervention materializes, other vulnerable people will continue to be the most affected by insurers involved in unfair processes such as dual pricing, reaping benefits for consumers based on their view of insurance.
Meanwhile, Macnamara is urging the six million British drivers who pay too much for their car insurance to take a tour of the renovation to make sure they get a competitive price.
Auto insurance premiums have declined in recent months. Dave Merrick of MoneySuperMarket said the company’s studies show that the coronavirus has probably helped lower car insurance premiums: “With fewer cars on the road, there have been fewer claims, putting downward pressure on prices.”
“It’s hard to say how long this downward trend will continue. As we leave the close, the roads will be busier and claims will begin to rise, possibly leading to higher prices.”
Merrick says the price of an average fully comprehensive car insurance premium in the UK is £475 – down 2% from £486 a year ago, and 6% lower than the end-2019 peak of £503
Compare the Market says almost double the amount of people who drove to work before the coronavirus pandemic expect to commute by car in the immediate aftermath of lockdown, meaning as many as 10.5 million extra cars could soon join the UK’s daily commute.
It says this increased traffic, triggered in part by government saying public transport should be avoided, will lead to hikes in motor insurance premiums.
Dan Hutson, of Compare the Market, said: “Car premiums, which have fallen recently, would probably be about to rise again. More drivers will have to adjust their policies to come with home-to-work policy and insurers can also simply increase their costs in anticipation of more cars and more injuries on the road.”
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I’m the British editor of Forbes Advisor. I have been writing in all facets of family finance for over 30 years, with the goal of providing data that is readers
I’m the British editor of Forbes Advisor. I’ve been writing about all facets of family finance for over 30 years, aiming to provide data to help readers make smart choices possible with their money. Global monetary can be complex and challenging, so I try to make it as accessible, manageable and rewarding as possible.