THE FINANCIAL Conduct Authority (FCA) this week launched an investigation into the cost of common insurance products, following news that almost two-thirds of people could be overpaying for motor cover while thousands of others may hold invalid policies.

The watchdog’s chief executive, Andrew Bailey, said its study will focus on areas of “potential consumer harm”. He added: “We want to make sure that general insurance markets deliver competitive and fair prices for all.”

According to the AA, the average premium for comprehensive cover has fallen by 9.9 per cent, or £69, over the past year, yet many drivers are shelling out more than ever.

Calculations from price comparison site Compare the Market found that they are overpaying by a combined total of around £2 billion a year as providers take advantage of their loyalty.

The website said that 62% of drivers – around 19 million people – accept their existing provider’s quote without checking for better deals, typically paying £113 more than is necessary.

Simon McCulloch, the site’s director of insurance, said: “The FCA’s market study into insurance pricing highlights a problem which affects millions of people across Britain.

“Recently introduced measures, such as showing the previous year’s premium on a renewal notice, have been a step in the right direction. But the very fact this needed to happen in order to control price inflation for loyal customers simply shows how large the problem has become.”

Georgie Frost, consumer advocate at GoCompare, said: “We welcome any investigation into this area because clearly something isn’t right and people feel they are being ripped off. Clearer rules and regulations will be better for everyone.

“New customers are enticed with a competitive price and then, if they don’t shop around and switch, they face often stealthy – sometimes blatant – premium increases in subsequent years.”

It is likely to be at least two years before any new rules are introduced as a result of the FCA investigation.

Ms Frost said: “People mustn’t sit back and wait for change to come, and we would encourage them to continue to shop around for the best value policies – those that provide the cover and conditions they need, at a fair price – and dump the insurers who are giving them a poor deal.”

Meanwhile, many drivers are unwittingly paying for insurance that does not exist.

According to the Insurance Fraud Bureau, there has been a sharp rise in “ghost brokers” selling polices over social media.

Chris Monk, the AA’s head of fraud, said: “We have voided well over 1,000 motor insurance policies this year with a combined premium value of around £700,000 due to known fraud, including ghost broking.

“Ghost broking involves an unauthorised intermediary setting themselves up to target unsuspecting and/or vulnerable groups of people by offering them cheap insurance that they otherwise would not be able to obtain.”

In exchange for their cash, the driver gets either a fake policy or one created with a genuine insurer using inaccurate details and paid for with stolen bank account or credit card information.

Mr Monk added: “Our message is, if a policy seems too good to be true, it probably is.

"The consequences can be that you become a victim of crime, and what’s more, you risk prosecution for driving without insurance, by which time the ghost broker will have simply faded through the brickwork and disappeared into the ether.”

When calculating the premiums they offer, insurers take into account the past likelihood of someone of the same age, postcode and occupation making a claim, but they also factor in information particular to the individual, and the weight they give this varies.

Reducing annual mileage, driving a lower performance car, garaging it overnight and adding a named driver with more experience and a good safety record can all cut policy costs.

The closer you are to renewal, the higher the prices you are likely to be offered, as providers know you are running out of time, so gather quotes about a fortnight before you need them.

The simplest way is to use a couple of comparison sites, as they all include a slightly different list of providers.

You may want to supplement these by contacting well-known insurers who do not work with comparison sites, but the fact that they use their lack of links with them as a selling point does not mean they will be cheaper.

In order to get the best possible deal for your own personal circumstances, it is always advisable to compare more than just prices.

Check the small print related to the policies to ensure you are able to make like-for-like comparisons and make sure that you take account of all charges, exclusions and other terms and conditions.