Comparison sites create huge distortion
Vulnerable customers can be severely disadvantaged by the way the market operates
Whether it’s warbling opera singers, Russian meerkats or 80s action figures gyrating to pop hits, adverts for price comparison sites are ubiquitous.
And even though the marketing pomp of these sites can sometimes drive you insane, they are handy tools to have – they help you scour financial and utility markets in a matter of seconds to secure the cheapest deals in whatever market you’re shopping.
Comparison sites have forced financial firms to compete fiercely on price as they scrap to get to the top of the tables in a bid to win your custom.
You could look at this as a huge win for consumers and a great empowerment for people to shop around and easily take their custom elsewhere if they’re not satisfied with the price they’re paying.
So much so that some financial firms, such as insurance companies, tend to lose money selling their policies on price comparison sites in order to win new customers.
But the rise of these sites has created a huge distortion in the insurance market, where loyal customers who stick with their insurer for more than one year see their premiums jacked up to cover the cost of recruiting those newbies – a perverse penalty for being faithful to a firm.
Our latest investigation into the home insurance market has enabled us, for the first time, to really quantify how big that penalty is. We surveyed more than 7,000 owners of contents and buildings insurance policies, asking them how much they paid and how long they had been with their insurance company.
On average, new customers (those who’d held their policy for less than one year) paid £195 for combined buildings and contents insurance. But customers who’d had their policy for more than one year paid £75 more – 38 per cent more than new customers.
And the longer you stay loyal, the bigger the penalty. People who held their policy for between two and four years paid £250, while those between four and six years of ownership paid £300. Those holding a policy for more than a decade paid £360 and the most loyal customers – those who’d stuck with their provider for two decades – paid almost double the amount of a new customer.
I can already hear the challenge on this – that it’s your fault if you haven’t switched insurer and that shopping around every year for cover is a well-worn message. Our survey said otherwise – 69 per cent of respondents surveyed had been with their insurer for longer than a year.
Worryingly, one in six of those aged over 75 had held their cover with the same provider for over 10 years and may have seen their premiums almost double in that time.
It’s this group of customers, who perhaps don’t have the ability to shop around, that are being hit for their fealty to their insurer. And while some of us may be wise to this practice, many people will be shocked to discover that years of dedicated custom with an insurer, who they trust will treat them well, is being exploited for the insurance industry’s gain.
Take this case in point. We spoke with one older insurance customer who was paying £554 a year for her home insurance after six years with her provider. However, on a leading price comparison site, she spotted the exact same policy was available to new customers for £335, prompting her to cancel her policy and reapply to access the new customer discount – saving £219.
So, how can you beat the hikes?
The first step is simple – burn into your brain that when it comes to insurance, there is absolutely no reward for loyalty. If you stay with the same insurer, year in, year out, often all you’ll be rewarded with is a big, fat price rise.
When you’re coming up to renewal, set aside a few hours to punch your details into a comparison site. Ring up insurers that aren’t on those sites and arm yourself with all the details on the best deals in the market.
Insurers are now obliged to tell you what your previous premium was when you get your renewal quote – so you can see exactly how much your premiums have increased.
And then challenge your insurer to match the best deals you’ve found. You’ll find some willing to do so. And, surprisingly, many insurers do allow customers to cancel their existing policy to take out a ‘new’ one at a cheaper price.
But if they’re not going to budge, be bold and walk away to another insurer that offers you a great policy at a great price.
It’s not all on you, though. Earlier this year the Association of British Insurers (ABI) and the British Insurance Brokers’ Association (BIBA) announced plans to tackle excessive premium differences between long-standing and new customers.
The two trade bodies acknowledged that some groups of vulnerable customers can be severely disadvantaged by the way the market currently operates. They’ve called on their members to commit to a set of principles aimed at ensuring competitive premiums for new customers don’t lead to longstanding ones being excessively overcharged.
Insurance firms have also been tasked with reviewing their pricing approach for customers who have been with them for longer than five years, and being clearer to newer policyholders that premiums are likely to increase after the first year.
While these steps should be credited, the trade body has committed to producing a report in ‘no less than two years’ – a huge amount of time for people to still be whacked with this loyalty trap.
Good insurers, listen up – put your head above the parapet now and announce changes to stop this rip-off from happening. Customers who have stayed with you for decades have stuck with you out of trust – acting quickly on this issue is your chance to show you’ve earned it.
Many people will be shocked to discover that years of dedicated custom with an insurer is being exploited for the industry’s gain