Every year people in the UK spend an astonishing £78billion on insurance premiums. The Financial Conduct Authority (FCA) report that more than four out of five people have at least one insurance policy—with home and car insurance the most common.
On Friday, the regulatory body, the FCA exposed how renewing car insurance with the same company could end up costing consumers £130, outraging campaigners and MPs. This leads us to ask; with the price of motoring ever increasing, can drivers still afford to be loyal?
The cost of loyalty
Insurance is a business famous for securing customers with offers that appear to be bargains, only to raise their premiums every year, resulting in drivers who don’t switch policies ending up paying far more than those who comparison shop.
Yet, if insurers charged all customers the same cheap prices offered to new customers, they wouldn’t make any profit. If they charged costlier, but higher rates to everyone, they’d lose customers to firms who continue to offer low introductory premiums. It’s a vicious pricing circle.
The FCA released figures showing how motorists who stay with the same insurance company for eight consecutive years may end up paying over £130 more than those customers who switch to a better deal every 12 months.
Their most recent figures also show that a driver who compares prices saves an average of £64 each year.
Years with an insurer and average yearly saving if you had switched
One year: £64.49
Two years: £65.47
Three years: £77.92
Four years: £77.91
Five years: £96.53
Six years: £88.93
Seven years: £63.54
Eight years: £130.83
Source: Financial Inclusion Commission/Financial Conduct Authority, via the MailOnline
Figures from the price comparison site GoCompare, show that switching to a different car insurance provider can save you a huge £268.69, yet despite knowing, by shopping around, they might make savings, a huge 65% of drivers renewed with their existing providers in 2018.
James Daley, Managing Director of the consumer group Fairer Finance, said:
“The more loyal a customer is, the more they get ripped off and the higher price they pay. This isn’t easy to solve.
“Price-comparison websites create fierce competition for new customers, and firms are looking to recover the money they lose on cheap introductory offers by getting it from customers who stay with them.”
Towards the end of last year, after a ‘super-complaint’ by Citizens Advice, the Competition and Markets Authority (CMA) found that loyal customers paid £4billion too much for certain financial services, with around 12million overpaying on their insurance.
Labour MP, Wes Streeting said:
“Good companies should recognise and reward loyalty from their customers.
“These shocking figures are a reminder of why shopping around is really important to get the best value for money.”
Car insurers have also received criticism for charging customers more to pay their premium monthly rather than in a lump sum each year—charging interest, like a loan. Experts believe large insurance firms earn up to £500million each year from this practice.
Time well spent
As customers, we still let insurance companies get away with overcharging us, because so many of us don’t realise it is happening, or switching provider seems too much effort. There are also people who don’t or can’t access the internet to aid them in their search.
To find a better deal:
Look at your latest policy paperwork (or email if you took out the policy online and you receive only paperless communication) to check what you’re paying. Even if your insurer was the cheapest last year, you shouldn’t assume the price they are offering is still competitive.
Check to see what your existing insurer would charge you if you were a new customer and, if you’re unhappy with the difference, contact your provider and tell them you’ll switch to another insurance firm unless you get a better deal.
If your current insurer won’t reduce your premium, begin your policy shopping using a price comparison tool. There are many comparison sites available and, depending on how much time you can devote and how much motivation you have, a good place to begin is with Confused.com — one of the leading comparison sites available.
Independent research carried out last year by Consumer Intelligence shows that shopping around could save 51% of car insurance customers £272.24.
Make sure you’re searching for a like-for-like policy and that you understand any charges, exclusions, penalties, and the terms and conditions. And always check the small print!
Once you’ve signed up for a new policy, set yourself a reminder for a week or two before the policy expires, allowing yourself time to shop around to get the best deal and not risk driving uninsured.
Do you think insurance companies should stop offering new customers bargain prices if loyal customers have to pay higher premiums? Do you comparison shop every year? Tell us your views in the comments.