Providers cheat customers by penalising loyalty

LOTS of firms discriminate against existing customers when it comes to prices. But this disregard for loyalty is much more serious when it comes to insurance.

Insurance is unique. With broadband, you will likely get a discount in year one, but at least you know what price it will be after the discount period.

Not so with insurance. The existence of risk-based pricing means you never know in advance what you will pay until you are given a quotation, whether you are a new customer or a longstanding one.

Only the insurer knows how much weight is given to the various risk factors; customers do not know how the price was arrived at and what other customers are being charged for a comparable risk.

This information asymmetry gives rise to all sorts of chicanery.

Information asymmetry is when decisions have to be made but one party to a transaction has more or better information than the other. So insurance dual pricing means consumers end up getting cheated. It is a form of mis-selling.

Price variations between new customers and existing policies can be as high as 90pc.

This means that a motor insurance policy that costs €700 in year one could jump to over €1,200 in year two.

This is even though there has been no claim, the car is the same and there is another year of a no-claims bonus.

Of course, it is not unreasonable to have some discounts for new business, but when there is such a huge variation in prices between new and existing quotations, and it is never clear in advance what the price will be, it amounts to sharp practice.

Companies won’t give new business discounts to people who take out cover with them and won’t allow brokers to do so either.

They are determined to punish loyalty by cheating consumers.

The existence of dual pricing shows how much premiums are padded up.

No wonder insurers are back making tidy profits.

What this means is you have to keep switching your business to avail of new business discounts every year.

The alternative is that the Central Bank follows the lead of its British counterpart and decides to clamp down on consumer-damaging dual pricing.

But you would be unwise to hold your breath while waiting for that.

You have to keep switching in order to avail of new business discounts every year