The biggest reform in UK home and car insurance in years was intended to shake up the market. The changes introduced by the Financial Conduct Authority on January 1 were designed to stop insurers giving new customers discounts not available to longstanding clients. 

In other words, they were supposed to close the gap between those who chop and change their insurer with every renewal and those who stay put.

The result? Well, it’s rather less clear than you might have thought.

The new rules stipulate that renewal premiums for customers cannot be more than the equivalent policy from that provider for a new customer buying through the same route (whether online, by phone or through a broker).

The expectation among industry commentators was that discounts for new customers — including those looking to switch — would drop in numbers and shrink in size. The Financial Conduct Authority itself observed, the reforms would “probably lead to some consumers paying higher prices if they currently benefit from significant new business discounts as inducements to switch”. 

Data from insurance comparison site GoCompare for the first quarter appears to confirm that trend. It shows that the average price for new home insurance policies paid by its customers rose by about 5 per cent between December 2021 and January 2022. 

“We have seen new business premiums increase marginally where insurers are looking to balance out the impact of losing the higher premiums they get from those who automatically renew each year,” comments Ceri McMillan, GoCompare’s home insurance expert. 

However, broader research from confused.com, another comparison site, suggests that increases in renewal premiums continue to be out of kilter with those for new policies. It found that renewal quotes for existing policies in the first quarter increased by an average £32 over last year, whereas new premiums were up just £11 on average. 

Of course, average figures can mask big disparities. Among insurers, some have reported premium reductions for existing customers despite industry expectations. LV=, for example, said that “the vast majority of our existing car and home insurance customers are seeing their prices go down, which demonstrates that the new rules are working and customers are benefiting”.

But anecdotal evidence from consumers suggests experiences have been very mixed so far. A number of FT Money readers have indeed contacted us to report renewals with premium increases of just a few per cent, or even substantial decreases.

One explained how he had stuck with his existing provider after making a claim five years ago; after five years of elevated premiums, he received a renewal quote in March that was less than the original price he had paid in 2017 before the claim. Another saw his premium fall from over £330 last year to just £87 in 2022, “for the same cover and conditions”. In his words, “what a saving!”

Other readers, however, have seen dramatic uplifts in renewal quotes. Alastair Gibb emailed FT Money to tell us his home and contents insurance premium had risen by 73 per cent from 2021’s price. Andrew Daley (not his real name) had a similar experience, facing a 60 per cent increase; “and we were told there was no movement in that premium unless we reduced our cover”. 

Both then searched elsewhere and switched to much cheaper alternatives, underscoring the continuing need to shop around. 

Bear in mind that premiums for home and car insurance are based on many factors: if you have recently made a claim, this is most likely going to increase your premium, just as it would have done before the January reforms.

“Under the new regulations, your current insurer must offer you the same price at renewal as if you were a new customer shopping through a price comparison site, for example. So if your circumstances change, your price is likely to as well, regardless of the new pricing changes,” explains Louise O’Shea, chief executive of confused.com.

Inflationary pressures are also now playing on prices, making it harder to identify the effects of the regulations. One example is the soaring cost of labour in the building trade — which pushes up repair costs. O’Shea says “insurers are paying out more to repair or replace cars or homes, and this will be reflected in the price we’re given”. Also, with the pandemic fading, claim numbers are expected to rise, as burglaries and car accidents increase.

Another complication is that insurers can change the terms — for example, the compulsory excess, or the amount a policyholder must pay on a bill, before the insurers cover the rest. 

It is very difficult for consumers to disentangle the forces shaping premiums, because insurers provide little or no explanation as to why premium prices move. This needs addressing by the watchdog, says Which? Money editor Jenny Ross. 

“Customers deserve greater transparency on how insurance providers set their prices in the first place, and the FCA should do further work into whether there are any practices firms should be prohibited from using,” she says. 

Meanwhile, as O’Shea observes: “Data proves that there still is the need to shop around. Yes, prices have increased, but it’s very likely that there will be another insurer that can offer a better price for the cover you need, as the market is more competitive than ever.”