THE LOYALTY PENALTY

How it’s costing you time and money

Money founder and columnist Paul Clitheroe shares a raw car insurance deal and the time and effort it took to find an equivalent but better priced policy.

Iam absolutely over being penalised for being a loyal customer. No, this is not a whinge about frequent flyer points, which are arguably Australia’s most rapidly depreciating asset. While I try to accumulate them and use them to save money on flights, they are a ‘want’ not a ‘need’.

This is about far more important things that I would not put in the ‘want’ (nice to have) category, but the ‘need’ (must have) category.

What has made me cranky is an insurance renewal offer for a car we own. The renewal amount was $2900. That was up on last year, but I do understand that insurers’ costs rise as well.

So, I went into my usual money-saving routine. First, I checked our car’s value. That was around $57,000. The renewal notice strongly highlighted our 65% no-claim bonus and, as we have been longterm members with a number of policies, a further 25% discount. That amounts to about a 74% discount off the full price, which is a huge discount and I am sure many people stop at that point and pay the premium. It’s hard to beat 74%.

But it all sounded a bit odd to me. This meant that the full cost, without ‘loyalty’ and no-claim bonuses, must be around $11,100. Take 74% off that and you get roughly to the premium we were quoted. This seemed ridiculous, so I thought

I had better start shopping around for a policy with no discounts at all, using our information: 65 and older, insured for 40 years with no claims, garaged car and low annual kilometres.

As you have probably guessed, ‘no discount’ quotes were way below this.

So, is our insurer playing us and using the 65%, then an additional 25% discount, as sales bait to get us to part with the significant sum of $2900?

In fact, could this premium be based on a totally uncompetitive retail price? We’ll come back to that in a moment.

Why we have to shop around

This is a serious issue for us consumers. We need insurance for our homes and car as much as we need electricity and gas, a mortgage, our savings and credit cards. In a modern world, these are pretty much essential needs.

Going right back to the Money TV show in 1993 and Money magazine in 1999, when it was launched, we’ve been stressing the need to shop around. This is just a simple statement of our own, personal financial literacy. No one expects products to be exactly the same price. It is up to us to do the research and ensure we choose products that fit our situation.

In a world with less competition, this seemed to work pretty well. Find the product for your situation and you could pretty much stick with it year after year. The internet, however, has created a far easier entry point for new competitors. In the past, an institution needed a good oldfashioned branch network or a distribution force of salespeople. This is expensive. Today, we have a mix of branch and online businesses with many running their relationship with consumers only online and a call centre. This has changed the cost dynamics of a business dramatically.

Technically, this should hugely assist us consumers. But it can also be highly confusing and take a lot of time to compare apples with apples. This, of course, is why we produce Money magazine’s Best of the Best Awards each year: to help us all navigate to the better products for our situation.

What is bugging me, though, is the need to constantly switch between providers

every 12 months. This is a trade-off between the time you take, which is valuable, and the savings you make on an equivalent product. Also valuable.

Electricity, for example, is a pretty simple thing. It does not come in different colours, makes and models, nor does it require working out what your house costs to build or your contents to replace. There are ample comparison sites, such as the Australian government’s Energy Made Easy, and many others that will cover where you live. Electricity is a fact-based decision. It is when you burn power – peak, off peak, shoulder and so on

– and then choosing the best plan to fit your energy usage.

Car insurance is harder. To get the best deal, you really need your insurer to understand the level of risk you represent. Personally, we’d prefer not to subsidise high-risk drivers by not providing all our information and driving history. You also need to ensure you are comparing ‘like for like’. Do you need a replacement car in case of an accident, lower glass breakage excess, maintaining your no-claim bonus if you have an accident, the ease of making a claim and the level of support you get. There is a fair bit to do in shopping around. The big question is, will you get enough of a financial return to make it worth your time?

How it worked for me

I went to several comparison sites and checked out what was recommended for our car insurance needs. I then went to three insurers online to get a free quote. I was looking for an insurer that wanted to know about us and I quickly found two. It took me about 10 minutes with each to fill out detailed information.

It was obvious to me that, with zero claims in more than 40 years, a not expensive, garaged car that is driven fewer than 8000km a year and no drivers younger than 30, I would get the best price from an insurer that asked those questions.

I did take a bit longer to trot out to the car to get our odometer reading: obviously the insurers wanted that. We nominated ‘under 8000km’ a year. In case of an accident, the insurer would want proof that we were driving fewer than 8000km, which is totally fair. If we reduce our risk rating to get a better price, the insurer should only have to wear the risk we nominate. With 40 years of no claims, we also moved our excess to $1000. It was $850 with our previous insurer.

Yep, I hear you. What is the bottom line? Previous insurer $2900. New insurer $1212. Same conditions, bar our ability to nominate low kilometres and the excess going from $850 to $1000.

I always recommend you call your existing insurer to discuss a cancellation, so I called. We looked at taking the no-claim to $1000; that led to an offer of around $2600. I called again to say we were not renewing and, after being put on hold, I was offered around $2400. You can guess what we did: saved the $1200 or so difference in price.

Another year, another switch?

To finish where I started, with the loyalty penalty. Next year I’ll need to shop around all over again. Our new insurer has a standard 15% bonus for firstyear online buyers. Next year I’ll have been a customer for a year, and I’ll be most interested to see if we get an incentive to pay for another year’s insurance. We’ll be back online, shopping around to make sure next year’s deal is fair. Sadly,

I suspect new customers will be treated better than loyal customers, so we’ll probably be switching again.

If we all behave in a logical ‘price comparison’ fashion, you would have to think that institutions would wake up to the fact that new customers are expensive to find. Loyal customers can be cheaply and easily found; you have our details.

Just send us loyal customers a price that is competitive with new customers… and guess what? We won’t be forced to leave.

n