Insurers will no longer be able to charge existing customers more than new ones under rules unveiled by financial regulator the FCA.
Price walking, the practice of automatically increasing the premium when it is renewed regardless will also be stopped.
The proposals follow months of consultation with the industry and years of complaints from consumer groups that the industry unfairly penalises loyal customers.
A super-complaint from Citizens Advice prompted the investigation by the FCA.
“These measures will put an end to the very high prices paid by many loyal customers,” said Sheldon Mills, the FCA’s consumers and competition director, though he did concede that it might mean higher prices for newer customers or those who search around looking for the best deals.
“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.”
The pricing, auto-renewal and data reporting remedies come into effect on 1 January 2022, while companies need to have systems and controls, product governance and premium finance in place by September.
The FCA said that the proposals will save loyal customers an estimated £4.2bn over 10 years and added that 10mln motor or home insurance policies have been held for longer than five years.
As an example, the FCA said a customer with a motor policy that originally cost £285 would be paying £385 if they stayed with the same insurer for five years.
Shares in insurers reacted calmly to the announcement, which had been expected.
Direct Line PLC (LON:DLG), which does not sell policies through price comparison sites, was the biggest riser adding 1.9% to 298.8p.
Aviva PLC (LON:AV.) rose 0.7% to 415.3p and motor insurer Admiral PLC (LON:ADM) added a similar amount to 2.935p.