How much is home insurance loyalty costing you?
We know that home insurers do everything they can to attract new customers. The tables have been turned, and companies no longer reward their longstanding, loyal customers who renew their policies every year.
But had we realised that it’s the loyal repeat customers who don’t switch who are subsidising the new policy purchasers?
Research published last month (October 2018) by the Financial Conduct Authority (FCA) shows that insurers are sometimes making a loss of 30 percent on the artificially low prices they offer to new customers.
Those losses are then made up by what’s referred to as a “loyalty tax” on their renewing customers, who pay prices bumped up far beyond inflation increases.
The FCA research shows that customers who stay with the same home insurer for five years will pay 70 percent more, on average, than a new customer.
So if a longstanding customer is paying £280 a year for their home buildings insurance, the new customer might be paying just £84 for the same cover.
Over-65s are hardest hit
The regulator says that policy holders who pay their premiums monthly, and renew their cover automatically every year in order to ensure they have continuous cover are hardest hit. And many of those customers are the over-65s.
We see, particularly among older consumers, a lot of people sticking with the same insurer year on year. There is a significant price for that loyalty. Chris Woolard, FCA
This group tend to have higher-than-average brand loyalty and are less likely to shop around online.
Ensure you’re not hit by the loyalty tax:
- Check when your home buildings insurance and home contents insurance policies are due for renewal
- Check what your policy is covering you for: are you paying for cover you no longer need
- Start shopping around now to compare prices
- You may want to use a different email address or a different computer (IP address) to get a new-customer quote from your current insurer
- Set a reminder a month before your policies’ annual renewal date, so you don’t just let them renew automatically