They estimate this is costing customers up to £1.2bn per year and affects all types of customers.
However, the FCA are especially worried about vulnerable customers, and they highlight that 1 in 3 potentially paying higher bills are in that category.
They have proposed a series of remedies to make the market work more effectively for consumers, including restricting the way insurance companies use auto-renewal.
The report published by the FCA is an interim report based on pricing practices within the general insurance industry and stems from multi-sector concerns about fair pricing.
Within the report, the FCA highlight several key findings:
Along with this, the FCA found that customers who switch or negotiate with their existing insurer can generally obtain a better deal
They pointed out, however, that the customers who paid high premiums were the ones least likely to understand the insurance market and the impact renewing has on their premiums.
The FCA's interim conclusion that the market isn't working for all comes weeks after Consumer Intelligence published their latest research showing that average home insurance prices are rising roughly in line with inflation.
As well as continuing with their existing efforts to ensure insurance companies deliver improved pricing practices, the FCA has also suggested some wider remedies for the home and motor insurance sector.
They are considering:
As these are only interim findings, nothing will happen immediately, and the FCA aims to publish a final report and open a public consultation in Q1 2020.
Even so, this is a reminder that the loyalty penalty is alive and well in the insurance industry, despite firms like Aviva pledging to stamp out such practices.
Concerns about the impact of the so-called 'loyalty penalty' have been raised in numerous sectors, culminating in a 2018 probe from the Competition and Markets Authority (CMA) that found customers were being penalised for staying loyal.
They estimated customers were missing out on £0.7bn in the home insurance sector alone, although the report didn't cover motor insurance so we can't compare their findings directly with the FCA's.
It's certain, though, that loyalty penalties and fairness are at the forefront of regulators' minds at the moment.
Recent reforms in the broadband and mobile sectors have focused on tackling out of contract charges for customers who choose not to switch or renegotiate with their provider following the end of their fixed term contract.
In a similar way, the insurance industry is now coming under more pressure to amend their practices to ensure vulnerable customers aren't penalised for their lack of awareness of the marketplace and their tendency to remain loyal to insurers for sustained periods.
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