Switch and Ditch: 6 million loyal insurance customers are being overcharged
October 15, 2019
2 min read
What's going on here?
A study by the Financial Conduct Authority (FCA) has found that 6 million insurance customers are being overcharged £200 per head every year.
What does this mean?
The so-called “loyalty penalty” has meant that loyal customers have been targeted for higher premiums as they are less likely to shop around and switch.
The FCA also found that elderly people and those on low-incomes were also less likely to switch, and therefore were being charged higher premiums, overpaying £1.2bn in annual premiums. In order to further ensure that people did not switch, insurance companies were found to be using tactics such as automatic renewals of policies.
The Guardian conducted some of its own research and found that a deaf couple (aged 91 and 92), were sent a renewal letter that had a 20% increase on their house insurance, bringing the new total to £579. When their son looked on that insurer’s site as a new customer, they found the same plan for a £108 premium.
Two years ago, the FCA made insurers publish the previous year’s premium when they sent out renewal letters. This move saved £185m for customers. The current investigation by the FCA could potentially have a similar, money-saving effect on consumers.
What's the big picture effect?
Such practices are clearly not fair to consumers, and especially those consumers who are vulnerable due to age or socio-economic status, for example. The fact that the FCA have brought this to the public’s attention should help and encourage the public to check their policies and premiums.
In fact, Which? has also found loyal customers paying higher premiums than new customers. Citizens Advice has also actioned a “supercomplaint” for the Competition and Markets Authority (CMA) to investigate why customers who stay loyal to insurers, mobile and broadband providers are paying more. With this issue gaining more traction and publicity, insurance companies may get hurt by this policy before the FCA brings in new regulations.
Although, Huw Evans, the director general of the Association of British Insurers, disagrees with the findings, saying “millions of insurance customers get extremely good deals by shopping around regularly, but we agree that the household and motor insurance markets could work better for consumers who do not shop around at renewal”. What this fails to acknowledge is the difficulty that some consumers may face in shopping around. Nowadays, shopping around is primarily done online and this becomes much harder for consumers who are not computer literate or who do not have a computer, or access to the internet via a compatible phone.
The FCA’s final report, including their solutions to this problem, will be published next year. What do you think is the best way to remedy the “loyalty penalty”?
Report written by Harina Chandhok
Share this now!
Check out our recent reports!