New regulations have come into force intended to stop providers overcharging existing customers.
The change means insurers can’t charge customers more to renew than they would pay if they were a brand new customer.
It is designed to stop the practice of “price walking” where insurers increase renewal prices for existing customers while offering discounts to attract new customers.
In theory, the new rules from the Financial Conduct Authority should make pricing fairer for drivers who don’t shop around each year but experts are warning it could inadvertently contribute to price increases throughout the year.
A number of comparison sites have warned that price rises could be on the way as driving habits return to pre-pandemic levels and insurers reassess their costs, with one service already reporting increases in the first two weeks of the year.
Compare the Market said that average quotes had increased by £43 so far this month compared with January 2020 and warned that while some firms continued to offer good deals, others were simply increasing prices across the board.
Compare the Market’s director Ursula Gibbs said the rise was partly due to a return to pre-Covid driving behavour but that firms were also pushing up prices because they could no longer subsidise new customer deals through charging existing clients more.
She said: "Motor insurance costs are already up over £40 year on year and it’s only the second week of January. The main worry is that the level of savings which are currently available to people who are looking to switch insurance provider imminently could reduce significantly in the coming weeks.
“Not all insurers have made the change immediately, but it is likely that prices could rise across all providers as insurers adapt to the new regulation."
Louise O’Shea, CEO at Confused.com, also warned that the new rules did not automatically mean a renewal quote was the best deal on offer.
She said: "While we don’t know how soon prices will increase, we’re confident that they will.
“In the past 12 months we’ve seen the cost of car insurance reach the lowest point in six years. And this is mostly down to the fact that people haven’t been driving as often. Now that we are spending more time on the road, the risk of making a claim is increasing. Added to this, the fact that the costs of making repairs, replacing vehicles and taking care of individuals hurt in accidents are increasing, the overall cost of claims is going up.
“Similarly, January’s changes could also trigger an increase. In the past, offering a significant discount for new customers often came at the expense of renewing customers, who saw their price increase. Without this to balance out the discounts, some insurers may need to increase their prices to even things out.
Ryan Fulthorpe, GoCompare’s car insurance spokesperson, said the new regulation sounded the “death knell” for the loyalty penalty but could negatively affect some drivers.
He commented: “We are already seeing slight increases in the cost of car insurance as people get back to pre-pandemic driving habits and there are subsequently more claims being made. But in terms of which customers this will impact the most remains to be seen.
“Our advice is, and always has been, is to pick up the renewal letter or email and compare that price against others in the market.