It is well known that in the United Kingdom, insurers tend to offer discounts on premiums for new policyholders to entice them to purchase cover with the insurer. Often these discounts appear only to be available to new customers, meaning existing and usually loyal policyholders miss out and face only ever-increasing renewal premiums, regardless of whether they have claimed during the policy period or not.

To try and eliminate this pattern, the FCA decided to publish a new set of rules titled PS21/5 during the second half of 2021, following a public consultation, to improve the insurance market for all policyholders. As such, insurers have been advised that from 1 January 2022 they will no longer be able to increase the premiums for existing policyholders on residential and motor covers, with what is being termed ‘loyalty tax’ or ‘price walking’.

To put it simply, the renewal premium offered to existing policyholders should be the same amount as if they were approaching the insurer as a new client. This also applies to auto-renewal policies.

Insurers have until 17 January 2022 to amend their pricing calculations to take into account these new rules, and if a delay to these changes should cause a policyholder to suffer negatively, then the insurer must ensure that they repay the policyholder, on the proviso the negative impact falls after 1 January 2022.

Insurers subject to these rule changes must confirm that they have attested to the changes no later than 31 March 2022 and then annually.