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Car insurers risk fines over auto-renewal in loyalty penalty crackdown

Sam Meadows
Car insurers who fail to explain that policies will automatically renew could be in hot water with regulators - PA

Car insurance firms could risk fines for failing to properly explain that policies will automatically renew as part of the Government's crackdown on loyalty penalties.

While the majority of motor insurance policies will roll over as default after a year, often at a higher price, the impact of this is poorly explained by the majority of firms according to consumer group Fairer Finance.

In updated guidance published yesterday, the Competition and Markets Authority (CMA), the competition watchdog, warned that failing to gain a customer's explicit consent to auto-renew a policy or applying it on a default basis could be deemed an unacceptable practice.

The Government's proposals would give the CMA the power to issue direct fines to firms in cases where it believes consumer law has been breached.

Fairer Finance said that, of the 51 motor insurers it monitors, 26 do not fully explain auto-renewal, while the same is true of 29 of 47 home insurers.

James Daley, from the group, said: "Too many insurers fail to give customers enough information about what will happen when their policy comes to an end. If these new rules work as hoped, we would expect to see this type of practice stop."

The so-called loyalty penalty costs consumers £4.1bn a year across five industries home insurance according to charity Citizens Advice.

It issued a super-complaint, a special form of grievance designed to force action from regulators, on the issue last year.

In response, the Government announced yesterday that regulators including the CMA, Ofcom and the Financial Conduct Authority (FCA) will be given greater powers to crack down on firms that overcharge or mislead customers.

The FCA said it has made good progress with its work on firms treating customers fairly when it comes to mortgages, cash savings accounts and insurance.

Christopher Woolard, executive director of strategy and competition, said: “Ensuring that markets work well for longstanding and vulnerable consumers continues to be a priority for us and the loyalty penalty is a serious issue. We will continue to work closely with the CMA and other regulators on the recommendations relevant to us.”

Responding to the Government’s plans, Ofcom, which regulates broadband firms and telecoms providers, warned that a one-size-fits-all approach to tackling the loyalty penalty could actually lead to some customers paying more.

It said that two in five broadband customers have agreed new terms with their providers meaning loyal customers could be on deals similar to, or better than, those offered to new customers.

Lindsey Fussell, consumer group director, said: “Our analysis of the market reveals a complex picture, and confusion among customers.

“Broad-brush measures could threaten discounts, both for new customers and long-term ones who agree a better deal. So we’re tackling the cost of confusion through a range of targeted action, based on the evidence.”

A spokesman for the Association of British Insurers, the trade body, said: “We are awaiting the outcome of the Financial Conduct Authority’s review into pricing in the general insurance market, which is expected in the next few months. We will comment on the Government’s proposals once we have seen further details.”