The change follows new rules made by the Financial Conduct Authority (FCA) which come in on 1 January 2022 to stop policyholders from paying a ‘loyalty penalty’. This is when new customers are offered lower premiums than existing customers.
The regulator has also asked the industry to ensure any commission received for selling insurance represents fair value to the customer.
Rob Evans, chief executive of Paymentshield, said the firm had been in “direct communication” with the FCA since the new pricing practices were announced.
Evans added: “Based on this insight and after taking advice from senior ex-FCA specialist consultants, we feel that making this change is the only right thing to do. The FCA is asking a clear question of the industry: is there a fair balance between long-term effort and reward? Can we honestly say we’re acting in the customer’s best interests if we don’t have meaningful contact for a decade, yet still take income from their policy?
“Other providers may take a different approach to justifying recurring income, but we think the paying of commission indefinitely for policies that are no longer actively serviced will fail to meet the FCA’s expectations.”
“We know how seriously advisers take their duty of care to customers, with many conducting regular reviews anyway,” he said.
Evans said with the average policy being in place for five years and Paymentshield’s commission rates staying the same, the change should not result in a huge reduction in income for most firms.
He added: “All our partners understand our position and the firms we’ve talked to directly agree that this approach is the right one for customers.”
