Home insurance companies 'make 100% of their profits from the loyalty penalty'

By agency reporter
April 11, 2019

Citizens Advice has found that home insurance companies in the UK make all of their profits – that is over £1 billion a year – from loyal consumers holding policies for six years or more.

The research also reveals loyal customers are paying an average annual premium of £325 for their 6th year of insurance – almost double that of new customers (£172).

In the last year the data was available (2016), Citizens Advice found 9.3 million policies where customers  had been loyal to their provider for six years or more. But there were only 6.9 million policies where customers switched after a year.

Citizens Advice is particularly concerned that home insurance companies make over half (51 per cent) of their profits from people defined by the market’s regulator as potentially vulnerable.

Its research shows people who are vulnerable due to issues such as poor health are likely to be paying the most for their home insurance. Citizens Advice estimates that 3.75 million policies have been held for 11 years or more and over seven in 10 (71 per cent) of these customers are potentially vulnerable.  

The charity is calling for the FCA to identify concrete solutions to the loyalty penalty as part of its insurance market study.

Diane, a 76 year old pensioner from Kent who suffers from severe arthritis, said: “I had my home insurance with the same provider for over 10 years. I see the increase in price every year but for me at my age, I find it difficult to shop around. It's just easier to stick with what I know.

“At the end of last year I received my renewal letter. They wanted to increase my premium from £1500 to £3500 a year. I was shocked, really confused and also sad that they expected me to pay so much.

“I had no choice but to find a cheaper provider. As I don’t have access to the internet I went through the Yellow Pages and called quite a few insurance providers and found a far cheaper deal of £958 per year.

“I feel I have been taken advantage of, they are just trying to make as money as they can. I don’t understand how my premium has gone up so much in the last couple of years. For people of my age to try and shop around is difficult but as my renewals come in I will have to try as being a loyal customer does not pay.”

Gillian Guy, Chief Executive of Citizens Advice, said: “It is appalling that home insurance companies are making all their profit from exploiting loyal customers. What makes this worse is that vulnerable people are likely to be the most loyal to their provider. Since we submitted our super-complaint about the loyalty penalty, some companies have rightly promised to treat their customers better. Yet many more are still choosing to make their profits off their most loyal and vulnerable consumers.

“The CMA’s response to our super-complaint was clear that regulators must come up with a plan to tackle the loyalty penalty by June. The clock is ticking, the FCA must act quickly to stop this systematic scam.”

Citizens Advice submitted a super-complaint on the loyalty penalty, in the mobile, broadband, home insurance, mortgages and savings markets, to the Competition and Markets Authority (CMA) in September 2018 calling for the regulator to consider how the problem can be fixed. The CMA’s response to our super-complaint in December said it agreed and had found damaging practices by firms, which exploit unsuspecting customers. The CMA said it wanted to see urgent action.

* Citizens Advice https://www.citizensadvice.org.uk/

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