Consumers in the UK could be paying £1.2bn over the odds for their home and motor insurance policies, a new report from the FCA has claimed.

The regulator has today published the interim findings of its market study into the pricing of general insurance policies, following concerns over industry practices.

The report estimated that around six million policyholders paid high prices and were “not getting a good deal” on their insurance. If those customers who forked out for high premiums had instead paid the average premium for their risk, they could have saved around £1.2bn a year, the data showed.

The FCA found that competition was “not working well” for consumers in the home and motor insurance markets, and criticised practices in some areas of the industry.

The report concluded that insurers often sold policies at a discount to new customers and then increased premiums when customers renewed. Some firms also engaged in a range of practices to raise barriers to switching – which was often the best way for customers to secure a better deal.

When setting a renewal price, most firms included their expectations of whether a customer would switch or pay an increased price, which was not made clear, the watchdog added.

The FCA also highlighted how one in three consumers who paid high premiums showed at least one characteristic of vulnerability, such as having lower financial capability. For people who bought combined contents and building insurance, lower income consumers (below £30,000) paid higher margins than those with greater incomes. People who paid higher premiums were also less likely to understand insurance or the impact that auto-renewing would have on their premium price.

The FCA’s executive director of strategy and competition, Christopher Woolard, commented: “This market is not working well for all consumers. While a large number of people shop around, many loyal customers are not getting a good deal. We believe this affects around six million consumers.

“We have set out a package of potential remedies to ensure these markets are truly competitive and address the problems we have uncovered. We expect the industry to work with us as we do so.”

The FCA said it was undertaking a range of activities in order to address the problems it had identified, and was also considering banning or restricting practices such as raising prices for consumers who renew year-on-year, or requiring firms to automatically move consumers to cheaper equivalent deals.

Other remedies under consideration include banning practices that could discourage switching, requiring firms to be more clear and transparent in their dealings with consumers, and asking firms to publish information about price differentials between their customers.

The FCA’s final report on this topic, together with a consultation on proposed remedies, is due to be published in Q1 2020.

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