The Financial Conduct Authority (FCA) says it’s keeping a close eye on insurers following the start of UK reforms banning renewal pricing increases that disadvantage loyal customers.

The rules were introduced from January 1 after a review found many insurers were increasing prices for renewing customers year-on-year in a practice known as price walking.

FCA says the reforms, applying to personal motor and household insurers, are expected to save consumers £4.2 billion ($7.9 billion) over the next 10 years.

Changes will also make it easier to cancel automatic renewals and will require firms to demonstrate that their products deliver fair value to customers.

FCA Consumers and Competition Executive Director Sheldon Mills says the interventions will make the market work better and ensure insurers can no longer penalise consumers who stay with them.

“You can still shop around and negotiate a better deal, but you won't have to switch just to avoid being charged a loyalty premium,” he said.

“We are keeping a close eye on how insurers respond to our new rules, to ensure that the benefits of a better insurance market are delivered to consumers.”

AM Best says there’s a risk in the early stages that competition will erode the ability of companies to increase new business pricing sufficiently to absorb lost renewal prices increases, but the new rules should not have a significant impact on the credit fundamentals of market participants.

Larger groups, with diversified income streams, and those with more sophisticated pricing models that can respond quickly to changing dynamics, should be best positioned to absorb the changes, it says.