Your feedback is essential to help us improve - click here to take our 3 minute survey.

Could new car insurance rules mean the end of switching discounts?

Could new car insurance rules mean the end of switching discounts?
Image source: Getty Images

If you’ve often found your loyalty to a certain car insurance provider penalised at renewal time in form of a higher quote, then there may be some relief on the horizon. New rules from the Financial Conduct Authority (FCA) banning insurers from using your history to charge you more at renewal time have come into effect as of 1 January 2022.

While this is undoubtedly great news for loyal motorists, what does it mean for those who prefer to shop around for new deals every year? Is this the end of low-cost new switching deals? Let’s take a look.

What are the insurance rules?

In many other areas of life, loyalty usually pays. This has not been the case in the insurance industry, however.

Rather than being rewarded for staying with their current insurance provider, motorists who choose to remain loyal usually see their price ramped up on renewal each year. This is commonly known as the ‘loyalty penalty’.

In a nutshell, new customers are typically offered cheaper deals to entice them, while existing customers are forced to pay over the odds for sticking with their current provider.

Now, new rules that effectively end this practice are coming into effect. From 1 January, premiums offered to an existing policyholder must not be higher than those offered to an equivalent new customer for the same policy.

The new rules, which also apply to the home insurance market, are expected to save consumers an estimated £4.2 billion over the next 10 years.

What do the new car insurance rules mean for cheap switching deals?

The new rules basically mean that switching discounts may not be as common or as significant anymore. There could be fewer enticing introductory deals for new customers. Some experts believe that premiums will be rebalanced between new and existing customers. Prices could be slightly raised for new customers and lowered for existing customers to meet somewhere in the middle.

However, that does not mean that it’s not worth looking for a better and potentially cheaper car insurance deal elsewhere when renewal time comes around.

According to Sheldon Mills, the FCA’s executive director for consumers and competition, you can still shop around and negotiate for a better deal. You just won’t be forced to switch just to avoid being charged a loyalty premium.

Remember that differences in provider products and customer service quality are still good reasons to look around and consider a switch.

How can you lower your car insurance premiums?

There are steps you can take to make sure that you’re not paying over the odds for your car insurance.

1. Pay annually

If you pay your car insurance premiums monthly, you will ultimately end up paying more because of interest. If possible, consider making an annual lump sum payment to save on interest costs.

2. Consider telematics or black box insurance 

With telematics or black box insurance, your premiums are based on the way that you drive. If it’s proven that you are a safe driver, you could be rewarded with lower premiums. This is particularly relevant to young or new drivers.

3. Add a second low-risk driver to your policy

If you are a young or inexperienced driver, adding a more experienced driver to your policy may reduce your overall risk in the eyes of insurers. This could lower the premiums you are charged.

4. Tweak the job title on your car insurance policy

Your occupation is one of the key factors considered by insurers when calculating the cost of your premiums. A minor change could have a significant impact on the quote you receive.

There’s a tool on the Money Saving Expert website that you can use to find some legal job title alternatives that could potentially help lower your premiums.

However, don’t lie about your job role or select a role that is not directly related to your occupation. If you do this, you risk being charged with fraud and invalidating your insurance policy.

Paying credit card interest? Time to switch to a 0% balance transfer card.

If you can’t afford to clear your credit card balance at the moment and are paying monthly interest, then check to see if you can shift that debt to a new credit card with a long 0% interest free balance transfer period. It could save you money.

By transferring the balance of any existing card (or cards) to a new 0% card, you could be debt-free more quickly – since your repayments will go entirely towards clearing the balance of the debt you owe, and not on interest charges.

Discover our top-rated picks for 0% balance transfer credit cards here and check your eligibility before you apply in just a few minutes – it’s free and won’t affect your credit score.

Was this article helpful?

Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.