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Home insurance customers paying hundreds of pounds in loyalty penalty, study finds

The Loyal home insurance customers and subscribers who maintain the same provider for six years or more are driving the profits in the sector, according to analysis from Citizens Advice.

Home insurance customers paying hundreds of pounds in loyalty penalty, study finds

Loyal customers are paying an average annual premium of £325 for their sixth year of insurance – nearly double that of new customers (£172) based on The charity reports.

The latest findings suggests that home insurance providers tend to make their profits from their loyal customers of six years or more.

The Association of British Insurers (ABI) said that firm makes profit depending on some influential factors and companies have committed to review premiums charged to customers who have remainrd with them for more than five years.

Customers that are consistent and loyal with their providers all year round could find themselves paying hundreds of pounds more for their policies than those who switch every year, Citizens Advice found.

After six years, a loyal customer could typically expect to have paid a total of £1,596 – £500 more than someone who spends every year as a new customer with their insurer, paying £1,032 on average.

Citizens Advice looked at the typical costs of home insurance, contents insurance, and combined home and contents policies using figures from the Financial Conduct Authority (FCA) and the ABI.

According to The charity in 2016 there were 9.3 million policies across the UK where customers had been constant to their provider for six years or more and 6.9 million policies where customers switched after a year.

Vulnerable people, including those in poor health, may be particularly likely to end up paying the loyalty penalty Citizens Advice said.

An estimated 3.75 million policies have been held for 11 years or more and in seven in 10 of these, customers are potentially vulnerable.

In one case, a 76-year-old pensioner with severe arthritis, who had been with the same provider for over 10 years, received a renewal letter wanting to increase her premium from £1,500 to £3,500 a year.

In her view. “I was shocked and also confused, so sad that they expected me to pay so much.

“I had no choice but to find a cheaper provider. As of that momment I don’t have access to the internet or any means to access internet, I went to the Yellow Pages and called quite a few insurance providers, i found cheaper deal of £958 per year.”

In the domain of Citizens, the Advice submitted a “super-complaint” on the loyalty penalty, in the mobile, broadband, home insurance, mortgages and savings markets, to the Competition and Markets Authority (CMA), they recommended for me after finding “damaging practices” by firms including stealth price rises.

Chief executive of Citizens Advice, Gillian Guy said: “What makes this worse is that vulnerable people are likely to be the most loyal to their provider.

“Since we submitted a complaint about the loyalty penalty, some of the companies promised to treat their customers fair, more of the companies are still choosing to make profits off their vulnerable consumers.”

Director of regulation at the ABI. Hugh Savill, said: “ making profit or not depends on factors which these figures overlook.

The insurance industry acknowledged that fierce competition between insurers for new business can result in long-standing customers losing out.

Insurance were the only and remain the first sector to take voluntary industry-wide action under the past year to tackle this issue.

“We always appeal to people to shop around at renewal, as Citizens Advice confirms, you can often get amazing value this way.”

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