Motor insurance switching reaches historic low – are GIPP rules finally making an impact?

The number of motor insurance customers switching insurer when their policy comes up for renewal has reached an all-time low – down to just one in three customers.

This is according to new data on the shopping and switching habits of motor insurance customers from market research firm Consumer Intelligence, published exclusively by Insurance Times.

According to Consumer Intelligence’s chief executive Ian Hughes, this historic low is due to the latent effects of recent regulations regarding general insurance pricing practices (GIPP).

The GIPP regulations, introduced by the FCA in January 2022, specified that insurers could no longer charge existing customers a higher price at renewal than they would charge new customers for the same policy – a practice often known as the “loyalty penalty”.

Hughes explained the impact this had had on consumers: “We’re seeing the lowest levels of people shopping around in history. For the entire decade before [GIPP regulations], consumers were extremely disengaged from the insurance purchase.

“You buy [motor insurance], you hope you don’t make a claim and the only time you really think about your insurance again is when you get your renewal notice.

”Then you get your renewal notice, the price has gone up and you go ‘that’s ridiculous, I’m not paying that’, and you go out and you shop.”

He continued: “The price went up either because you had lost your introductory discount of, say, 10%, or because insurers had put the premiums up to try and make profit from their back book – but you could pretty much always make a saving by shopping around and switching.

“GIPP meant that, when you got your renewal notice, you hadn’t had an introductory discount and so it hadn’t unwound. When you saw last year’s premium versus this year’s premium, other than a bit of adjustment for inflation and re-rating, it’s a similar number – maybe 3-4% up or down.”

GIPP’s delayed impact

Given the expected impact cheaper renewals might have on policy switching, a question is raised – GIPP regulations came into effect in January 2022, so why did it take three years for a reduction in shopping and switching behaviour to be seen?

The answer, Hughes explained, lies in the psychology of consumers, most importantly their tendency to shop in greater numbers when their cover increases by more than the “trigger amount” of £30.

He explained: “What happened for the years immediately post-GIPP was that the inflation in motor insurance was way more than £30 [a year], because there was a huge spike in claims inflation.

“Insurers put a load of premium through, which bumped up people’s prices and made people feel like they felt when they lost their introductory discount – they went out to market and they were switching.

“We are only seeing the GIPP effect now, because of what happened with claims inflation and what happened with premium inflation.

”This year, people are now getting renewal notices through which basically say premiums are about the same, so a lot of consumers won’t bother [shopping around].”

The impact of that inflation is most clearly seen when viewed through the lens of renewal price changes.

From February 2022, consumers saw increases in the price of their cover in almost every month until January 2024, invigorating shopping behaviour and temporarily drowning out the impacts of GIPP.

For most policyholders, they would then need to wait a further year for a renewal notice that was not impacted by premium inflation.

Switching trigger

While Consumer Intelligence’s data suggests that a rise in premium price of £30 a year leads policyholders to shop around, it also indicates that it actually takes a rise of £40 to £50 pounds to get them to switch policies in meaningful numbers, due to the perceived effort involved in the process.

As might be expected, consumers are the least likely to switch policy when their renewal premium is unchanged from the previous year. Indeed, they do so in just 12% of cases.

Customers who received cheaper renewals quotes almost always switched at a lower rate than the overall average of 40.2%.

A counterintuitive trend of greater reductions leading to higher switching levels may suggest that large price falls can trigger customers to investigate whether other providers had also dropped their prices substantially.

Every customer bucket that was quoted an increase of more than £40 switched provider at higher than average levels, peaking with customers who were quoted an additional £151 to £250, who switched in 70% of cases.

For Hughes, the impact of GIPP – now in full swing – could have a big effect on how insurers do business over the coming years.

He explained: “There’s nothing that would indicate that there are any major changes coming that are going to affect premiums in 2026 and so it’s highly likely that your renewals notice next year is going to be similar to the one you had this year.

“Therefore, it’s highly likely that you’ll continue not to shop next year and that this pattern [of declining shopping behaviour] will continue.

“I think 2026 might be the year of loyalty. You’ve already paid to acquire a customer, why don’t you see if you can really try and sell that customer more things?

“You’re doing it because you’re not having to pay the acquisition costs and because you can make better judgements about the quality of that risk. You can look to retain them and sell them more things, to get more share of wallet from them.

“That might be the story of 2026. You’re already seeing some companies like Admiral vey successfully execute on that strategy of cross-selling. It could be that 2026 is the year of cross-sell and up-sell – and the year of loyalty.”