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Failure in the home and auto insurance market meant that consumers would pay over £ 1.2 billion, the city official concluded.
In a tentative report, the Financial Conduct Authority estimates that about 6 million consumers pay an average of £ 200 in premiums.
The competition did not work and loyal customers were punished.
FCA actions may include the prohibition of automatic price increases and the move of businesses to cheaper deals.
"This market is not suitable for all consumers," said Christopher Woolard, FCA's director of strategy and competition.
"While a lot of people are shopping, many loyal customers aren't getting good deals. We affect about 6 million consumers.
"We've come up with a potential remedy package to keep these markets truly competitive and solve the problems we've found. We expect the industry to work with us."
The regulator found that some insurance companies aimed to raise prices to people who were less likely to convert. It has also been shown that many low-wage or vulnerable consumers face higher premiums.
Possible FCA treatments include:
- Prohibited or restrictive practices, such as raising the price of consumers renewed annually or requiring companies to automatically move consumers to cheaper equivalent transactions
- Cease practices that may prevent conversion, including restrictions on how companies use automatic renewal
- Improve communication with customers (e.g. improve communication with customers)
The FCA also said that companies are considering whether to publish information about price differences between customers.
The authorities plan to issue a final report on possible remedies in early 2020 after further consultation with industry and consumer groups.
'I feel she cheated'
Paul from Staffordshire couldn't believe that she was paying £ 800 a year looking into her mother-in-law's building and content insurance.
He asked Citizens Advice for help, saying: "She lives in a small house on a small terra terrace. It's not cool.
"I visited an online insurance comparison site and did some other searches using different types of signs. It always came under 300 pounds."
"I calmed down when I realized that she was in the same company for more than five years.
"She is an 89-year-old woman and does not have the ability to classify everything on her own. She feels like a trick. And it seems to be a common practice to kick out the most vulnerable."
He complained to the financial ombudsman.
& # 39; Bold Ideas & # 39;
Hugh Evans, Secretary General of the Association of British Insurers, an industry trading agency, admitted that his members may be more effective for consumers who do not shop at the time of renewal.
But he added: “This is not a problem specific to insurance, but we are the only one that has taken voluntary action to solve this problem and is already paying off.
"It is important to carefully consider the consequences that are not intended to ensure a fair and balanced approach to all customers."
"It would be nice for the FCA to admit that the insurance market is not working," said Gillian Guy, Chief Executive Officer of Citizens Advice.
But she warned that the FCA's report only suggests. "FCA should now follow these bold ideas to prevent fines from loyal insurance customers," she said.
Paying Poverty Premiums
Personal Finance Reporter Kevin Peachey
You did not have any problem with your insurance company or bank so you stayed with them for years.
According to FCA and other reviews, it is an expensive option for home and motor cover, overdraft, etc.
Loyalty does not pay.
People who have difficulty finding or bargaining better online will pay more. The FCA report also has a head on poverty premiums. If your finances are less elastic or you have trouble dealing with money, you will have a worse deal.
If the British become cashless societies, the 8 million people who are estimated to have left the Independent Report would be the same people.
Undoubtedly, they will feel like financial victims of technological developments that have changed our way of life.
Have you overpaid your home or car insurance premiums? Share your experience by email haveyoursay@bbc.co.uk.
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