Car Insurance Loyalty Penalty: What It Is and How to Avoid

October 7th, 2025
Car Insurance Loyalty Penalty: What It Is and How to Avoid

How widespread is the loyalty penalty in car insurance?

The loyalty penalty is not just a problem for motor insurance customers. It can be found in many types of general insurance. This includes home insurance and travel insurance as well. The Financial Conduct Authority (FCA) says the problem happens a lot. They say people who keep renewing each year often pay higher prices than new customers.

In the car insurance market, the Association of British Insurers (ABI) says that many people pay more for their insurance at renewal than new customers. New customers often get a better renewal price. Sometimes, even if two people have the same type of car insurance, the renewal price is not the same. A new driver can get a lower renewal price, but a loyal customer may have to pay much more, sometimes hundreds of pounds extra.

The price of insurance can change for a few reasons. It may go up or down because of the cost of claims and the price to fix car parts. The renewal price also depends on the number of claims made in the previous year and what kind of weather there was. Many people saw that last year, their insurance premium was lower. This was not because of the renewal but because they got a new-customer discount. When that discount ended, their renewal price went up. Most of the time, the renewal documents did not give a clear reason for the higher price.

Why do insurers apply a loyalty penalty?

The loyalty penalty is there because of the way insurance pricing works. Insurance companies look at your driving record and your past claims. They also think about what might happen if you have a claim in the future. They use all of this to figure out the cost of your insurance when it’s time to renew your policy.

Insurers now have new pricing rules for customers, especially in the first year. They often give a better price at the start. This is to get more people to buy the policy. The price is not just about risk. A lot of it is about pricing and how they market to their customers. Many drivers do not go somewhere else when their first policy ends. Because of this, insurers feel they can set higher prices at renewal. They think people will stay even when prices go up.

Other reasons include:

  • Expensive cars and young drivers: Insurance costs can be higher for people that the insurer sees as risky. Young people and those who have expensive cars often get hit with higher premiums. The loyalty penalty can also push your renewal price up more.
  • Claims history: If you made a claim in the last year, your renewal price may go up. Even if you did not make a claim, your insurer can still raise your insurance costs. This can be because of things happening in the wider market.
  • External factors: Inflation, how much it takes to repair a car, and changing costs for all claims in the market can make renewal prices higher for every driver.

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How much are drivers really overpaying?

The loyalty penalty is more than just a thought. The truth shows it can make people lose a lot in their daily lives.

Driver Profile Last Year’s Premium New Renewal Price Best Price on Market Annual Saving if Switching
28-year-old, 5 years NCB £620 £710 £525 £185
52-year-old, no claims £480 £590 £440 £150
19-year-old, first policy £1,850 £2,050 £1,600 £450

These examples tell us that the renewal price usually goes up from the previous year, even if nothing has changed with the driver. If you use a price comparison website, you will see which policy is the cheapest for you. A full breakdown of what is in the policy will also be there.

How do future claims affect renewal premiums?

When it comes time for renewal, your insurer looks at how a possible new claim can impact them. Even if you did not have any claim last year, the price of your insurance might still go up. This happens because they also check your risk profile.

For example:

  • A person who drives an expensive car may get a higher renewal price. This is because the cost of claims to replace car parts is high.
  • Younger drivers are seen as a bigger risk. They often get a new cover price that is much higher than what older drivers pay, even if they have the same kind of car and live in the same area.
  • If you have made even one claim for personal injury, the cost of your insurance can go up for many years after that renewal.

These range of factors show that the cost of your insurance is not just about how you drive. The price is made up of more than how you act behind the wheel. What you do while driving does matter. But there are also other things that go into what you pay. It is good to look at all the things that can change the cost of your insurance.

How do future claims affect renewal
      premiums

How to avoid the loyalty penalty effectively

The best way to make sure you do not pay too much for car insurance is to use online websites. A car insurance price comparison site can help you see prices from many places. That way, you can check if your renewal price is right or a lot more than others. This lets you find the best deal for your car insurance renewal.

Top tactics include:

  1. Shop early: The best time to buy car insurance is about 21 to 26 days before it is to be renewed. If you wait until the last week, you often get higher prices.
  2. Request a full breakdown: Ask your insurer to show how they came up with the cost of your insurance at renewal. Find out what your claims history and other things, like external factors or weather, did to the price.
  3. Leverage great service: A better price is not always most important. If your insurer gives good service and clear papers for renewal, you may feel it is fine to pay a little extra.
  4. Switch insurers: Staying with your old insurer does not mean you get something more. If you switch to another insurer, you could save from £100 to £300 or even more.

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How Free Price Compare helps drivers fight the loyalty penalty

Free Price Compare helps you find the most accurate price from many insurers. You do not have to pick the first renewal price that you see in your renewal papers. You can look at other choices right away.

  • Try to get the cheapest policy you can find.
  • Take time to look at and compare all car insurance cover types UK. These go from third party to comprehensive.
  • Learn how things like breakdown cover or legal cover can change the cost of your insurance.
  • Check the average price that matches your driver details and car.

When you do this, you can get a better price for your plan. You also make sure you are not hurt for sticking with the same company. Plus, you can keep the right level of cover that you need.

FAQs about the loyalty penalty in car insurance

Why is my car insurance renewal more expensive than last year’s premium?

The renewal price for your car insurance can go up for several reasons. One reason is the first-year discounts may not be there anymore. This means you will be paying more in the second year. The company could also check if you made any car insurance claims in the previous year and set a new price for your renewal.

Other things can also matter, like higher prices or repairs costing more now. Even if you did not claim anything in the previous year, the company can still look at what could happen next. They use all these things to figure out your renewal price.

Has the loyalty penalty been banned by new rules?

The FCA brought in new pricing rules in 2022. Because of these rules, insurers must offer the same prices to both new and old customers for the same policy. This change helped get rid of large price gaps. Still, there are many people who see higher prices when it is time for renewal. This happens because quotes are not always set by seeing what is going on in the current market.

How can I get the best price for my car insurance?

Use a price comparison website to see the average price from many providers. Put in your renewal details to see every part of each insurance policy. Pick the one that has good cover and does not cost too much. If you shop early, you may get a better price.

Does the loyalty penalty affect other insurance products?

Yes. People who have home insurance and travel insurance are being made to pay more when they stick with the same company. Motor insurance customers feel this problem the most. In the insurance market, if they do not look for other options and just stay, they would be paying much more than they need for cover.

What factors increase the cost of your insurance?

The cost of your insurance can go up or down for a reason. A range of factors shape this cost. Your age, the type of car you have, and your driving record all play a part in what you pay. If you own expensive cars or make a high number of claims, the cost of your insurance is likely to be more. The cost of claims and the risk can also make the price rise, especially for young drivers. Bad weather can change things too. So you need to know that what you pay may be set by all these things.

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