Insurers told to stop bias against loyal customers

CONSUMER experts are calling for a ban on ‘dual pricing’ in the insurance market to end widespread discrimination against loyal customers.

They call recent initiatives by a handful of insurance giants aimed at improving the lot of long-standing customers as ‘gimmicks’ that do not go far enough.

Andrew Hagger, of financial consultancy MoneyComms, says: ‘Recent developments from the likes of Saga and Aviva are gimmicks that do not solve the dual pricing muddle. They look nice but to really solve the problem dual pricing needs to be scrapped.’ He adds: ‘Currently the market is skewed heavily in favour of new customers with loyal policyholders footing the bill for the cut price introductory premiums and the hefty commission payments to the comparison sites that drive the majority of their business.

‘There needs to be a fundamental change as insurers are paying a high price to entice new business and meet internal sales targets only for it to walk out the door 12 months later.’

For the past two years the scandal of ‘dual pricing’ has driven The Mail on Sunday’s Broken Loyalty campaign to end this injustice that impacts on millions of households.

Our campaigning has prompted calls for wholesale change. The practice has been criticised by Citizens Advice, the Competition and Markets Authority and the Financial Conduct Authority, piling pressure on the insurance industry to change.

Last week, Citizens Advice revealed that customers who had stayed with the same home insurer for five years were quoted on average £325 to renew their annual policy – almost double the £172 offered to much sought-after new customers.

Some companies have already acted to eliminate price discrimination while others are looking at whether they should change their pricing strategies. But publicly, at least, they remain tight-lipped.

Saga recently announced it would guarantee premiums for three years to loyal home and motor customers – a consumer-friendly move that did not go down well with the company’s shareholders, resulting in its share price plummeting.

Aviva has also introduced AvivaPlus that promises customers will not pay more at renewal than new buyers – provided their circumstances have not changed materially. MoreThan, part of RSA, enables policyholders to earn cashback from retailers they use that can then be offset against their renewal premium.

Gillian Guy is chief executive of Citizens Advice. Last year, it filed a ‘super-complaint’ with the Competition and Markets Authority demanding regulatory intervention.

She remains particularly concerned about the insurance industry’s exploitation of vulnerable customers – those who are elderly and unable to easily use online comparison tools.

She says: ‘What makes this issue worse is that vulnerable people are likely to be the most loyal to their provider. Since we submitted our supercomplaint some companies have rightly promised to treat their customers better. Many are still choosing to make profit from their most loyal and vulnerable consumers.’

The CMA’s response to the supercomplaint makes it clear that regulators should come up with a plan to tackle the ‘loyalty penalty’ by this June. Industry organisations the Association of British Insurers and the British Insurance Brokers’ Association have taken steps to put pressure on insurers and brokers. A year ago, they issued ‘guiding principles’ that members should commit to. A key part was to stop unfairly penalising long-standing customers.

Insurers have also pledged separately to review premiums charged to customers who have been with them more than five years. This is in addition to existing rules that mean insurers must show last year’s premium on customers’ renewal paperwork so they know exactly how much their bill has risen.

Ryan Fulthorpe, home insurance expert at comparison service GoCompare, says: ‘There is no good reason why providers should be able to offer a better deal to new customers than to existing ones – other than they can get away with it.’

James Daley, of website Fairer Finance, says insurers who offer big discounts to new buyers to drive sales make a loss on the premium in the first year, break even in the second and only in year three start making a profit from their customers.

He says: ‘This makes the dual pricing conundrum difficult to solve. Recent developments are positive but the industry needs to look for fairness in aggregate even if it means those who shop around hardest will lose out by paying more.’

Reader Bill Griffiths, from Chorleywood in Hertfordshire, took matters into his own hands when he received his household insurance renewal reminder from Churchill last month. He says: ‘They wanted to up the premium by 28 per cent from £382 to £489 despite our last claim being in 2011. I went on to comparison service confused.com and found an almost identical product for £315. Guess who from? Churchill!’

He took great pleasure in purchasing the alternative and phoning Churchill to tell it what he had done.

The Mail on Sunday urges readers not to put up with a poor insurance deal. If you are a long-standing customer – and believe you are being exploited – then use the letter below to demand a better premium.