Nationwide insurance rip-off: loyal member pays £1,003, new customer just £499

Nationwide Building Society has admitted that some of its longeststanding insurance customers are being charged more than double the rates new customers are asked to pay.

The building society is the latest of many firms to confess to a rip-off known as “price differentiation”, where loyal customers are hit with successive premium increases while new customers with the same risk-profile are offered cover at a fraction of the cost. Consumer groups have called this practice a “loyalty tax”.

One Your Money reader finally had enough when Nationwide increased his annual home insurance premium by 22pc from £824 to £1,003. He had first taken out the cover in 2012 at an initial £567. Over five years the cost had risen by 77pc, without a claim being made.

If he were to sign up today as a new customer, Nationwide would offer cover on the same terms and property for £499 – less than half what he was being asked to pay. The practice is widely condemned, as it forces consumers either to change provider repeatedly or to overpay. The elderly and those without internet access are especially at risk of higher premiums.

The Association of British Insurers, which represents the industry, said firms are prevented from collectively agreeing to abandon the practice by competition law.

But individual firms, including industry giant Aviva, have publicly stated their dislike of the practice and indicated that they would break away from the model of discounting for new customers at the expense of old.

For Nationwide, which as a mutual promotes the idea that everything it does is in its members’ interests, the issue is especially uncomfortable. Its head of protection, Rob Angus, admitted to “a need for change”. He said that of the mutual’s 500,000 insurance customers, a “mature” group of policyholders – those who had been with the society for four years or longer – were being targeted with premium reductions, rather than the customary increases. So far only 20,000 have benefited.

“The market goes for heavily discounted new customer pricing, which penalises loyalty,” Mr Angus said. “If we were to price more fairly we’d get complaints about being uncompetitive.”

For now the answer is shop around. The reader found similar cover with Legal & General for less than £440 – saving almost £600.

‘On your side’: Nationwide overcharges its longstanding members for insurance