Are you paying a loyalty penalty on your insurance
Most businesses will understand the value of loyal customers – and some will offer loyalty discounts to customers who have stayed with them for a few years.
But things don’t seem to work that way in the insurance industry. In fact, insurance companies seem to be actively penalising their long-term customers.
A recent study by consumer champions Which? has found that loyal home insurance customers can find themselves paying a £75-a-year penalty for sticking with the same provider. Existing customers with combined buildings and contents policies owned for longer than a year were paying on average £270 a year for a combined policy, while new customers were paying £195.
But the problem does not stop there. The loyalty penalty gets worse, the longer you stay with an insurer. Customers who had been with the same home insurer for over 20 years paid around double the amount of what new customers paid. The average premium paid for a combined buildings and content policy 20 or more years old was £396 a year, compared with the £195-a-year average for new customers.
Why does this happen?
The simple fact is that home insurance is something that we all know we need – but not something we want to spend time on arranging. Around 70% of customers seem to stay with their insurer year after year.
As a result, when renewal time comes around, many of us simply do nothing, knowing that our existing insurer will be happy to continue to take the premium. We think that because we had a good deal from the insurer in the past, we can trust them to provide it again.
As the Which? study shows, we simply can’t thrust them to do that. It seems that the insurance companies are relying on us not to bother with checking their offer against their competitors when we renew.
Rather than reward loyal customers, they offer the best rates to newcomers – in the hope that they will become ‘loyal’ customers who they can charge much more in the future. In effect this means that there is a new customer discount, which you are paying for through an increased charge for your own premium.
It’s time to beat the Insurance companies at their own game.
How to cut the cost of your home insurance
Most home insurers have auto-renewal clauses in their policies. This means that your cover will roll over automatically at the end of the policy – unless you tell them that you don’t want it to.
But your insurer must provide you with a notice of renewal before you’re signed up for another year. This is usually sent by post, outlining the full details of your new policy and what you will pay.
It will also explain how you can cancel and how long you have to change your mind. Most companies will contact you at least 21 days before your policy is automatically renewed. This means that it is time to shop around – and get the benefits of a new customer discount for yourself.
Fortunately, this is now very easy to do. You don’t need a specialist broker unless your home or your circumstances are very unusual. Most of us will be able to use a comparison site to find the best rate. Compare the Market, confused.com and many others will let you see the insurers offering the lowest cost for your property and compare the cover they are offering.
You can save £75 – or more – in a matter of minutes.
New rules are coming. The Association of British Insurers has recognised the problem, and is urging its members to improve the way that they serve existing customers – but until they do, it is up to all of us to hunt out the best deals – and save money when we protect our homes.