UK insurers will be banned from penalising loyal home and motor customers through their pricing practices in measures the regulator estimates will save consumers £4.2 billion ($7.7 billion) over 10 years.

The Financial Conduct Authority (FCA) says many firms increase prices for existing policyholders at renewal over the course of years, in a practice known as price walking, while making below-cost offers to attract new customers.

A market study published last year found six million policyholders would have saved £1.2 billion ($2.2 billion) in 2018 had they paid the average price for their actual risk.

The FCA rule changes, which come into effect from January 1, include rules allowing easier cancellation of automatic renewals and requiring insurance firms to do more to consider how they offer fair value to customers.

Home and motor insurance firms will be required to report data to the FCA to assist supervision of the market.

“These measures will put an end to the very high prices paid by many loyal consumers,” FCA Consumers and Competition Executive Director Sheldon Mills said.

“Consumers can still benefit from shopping around or negotiating with their current provider, but won’t be charged more at renewal just for being an existing customer.”

FCA published research results from an online insurance purchasing simulation, which backed a decision for cash and cash-equivalent incentives to be reflected in the equivalent new business price.

The research found no clear evidence that non-cash promotions like toys and cinema tickets misdirect consumers’ attention.

Association of British Insurers Director of Regulation Charlotte Clark says the new rules must be applied across the whole market, including price comparison websites and brokers, with a uniform level of supervision.

“It will remain important to maintain incentives for customers to shop around, while ensuring competitive deals for those who stay with their insurer,” she said.

The British Insurance Brokers Association (BIBA) says it supports an end to dual pricing and any move by product providers to compete on the quality of cover as much as on prices would be a “great outcome” for consumers.

“We believe that the requirements made around product value will necessitate increased interactions between brokers and insurers and we are sure that the industry will work collaboratively to deliver on the respective product governance obligations,” the BIBA statement says.

Consultancy Consumer Intelligence CEO Ian Hughes says the changes “represent a tsunami for both insurers and their customers” and could offer a bumpy ride in the short-term.

Cash and cash-equivalent incentives, other than toys and carbon offsetting, cannot be used to entice new customers without being offered to renewing customers, meaning those who shop around each year will see prices rise and discounts and offers disappear, he says.

“However, there is an opportunity for the industry to take advantage of all this change that is coming and do something that will be good for brands, good for the industry and good for consumers,” he said.