Direct Line will pay an additional compensation of around £30 million to customers who were overcharged for their car or home insurance.
The insurance company admitted to an 'error' in implementing the new pricing rules introduced by the financial watchdog in 2022.
The financial conduct authority said that current insurance customers were charged more for their renewal than they would have done if they were a new customer.
The admission comes after The Independent revealed that almost 12,000 complaints were received by the Financial Ombudsman Service in the past year, a four-year high, making car insurance the third most complained-about financial product, behind current accounts and credit cards.
The revelation follows this newspaper's exposé of the car insurance con, which found that car insurance premiums have been hiked by 48 per cent over the past year.
The third-highest household bill, behind council tax and energy, is now the third-biggest, with soaring costs driving many motorists to sell their cars.
Direct Line had to act after the FCA introduced new rules last year, which prevent renewing home and motor insurance customers from being charged higher prices than a new customer would be charged.
Direct Line's CEO, Willie Phelps, admitted today that the company's revenue was not impacted by the scandal.
The insurance company said it will review its past policies.
Direct Line did not specify how many people were expected to be compensated, but it predicted that the total payments to affected customers would be in the region of £30 million.
It is known that not all customers who have renewed their home or car insurance since the FCA's new pricing rules came into effect will be overcharged, it is understandable.
Direct Line said it will be contacting affected customers directly, and customers do not need to do anything themselves at this stage.
The company has hiked prices for its motor and home insurance policies this year as claims costs skyrocketed.
On Wednesday, the company said it had selected Adam Winslow from rival Aviva as its new chief executive, and he will take the reins in the first quarter of 2024.