You probably know that you should be shopping around for the best deal for your home or car insurance.
But if you’re like many people, when you get your automatic renewal notice, you’re busy. So you just roll over, allow your provider to deduct next year’s premium, and forget about it.
You might, however, sit up and take notice though when you know this.
Loyalty does Not Pay
New research from the Citizens’ Advice Bureau shows that the longer you stay with the same insurer, the higher your bill.
After six years, home insurance customers who remain with the same provider pay £325 a year on average. That’s almost double what new customers pay (£172).
The cost increases on a sliding scale. This is why many customers simply don’t notice their premiums are steadily rising.
But why does it make sense for home insurers to punish their most devoted customers?
Simply because they are the ones that reap them the most profit.
The Citizens’ Advice Bureau says that home insurance companies make 100 per cent of their profits from loyal customers.
To do this, home insurers take an initial hit by underselling initial premiums because they anticipate the rewards later on. Offering big discounts to new buyers is what keeps their business moving.
This means that over 12 million households have been affected by the loyalty penalty on home insurance in total, costing £708m a year, Citizens Advice says.
The consumer advice charity also believes that 3.75 million policies have been held for 11 years or more.
Its research shows people who are vulnerable due to issues such as poor health are the ones likely to be paying the most for their home insurance.
Citizens Advice has now submitted a super-complaint on the loyalty penalty, in the mobile, broadband, home insurance, mortgages and savings markets, to the CMA.
It is calling for the regulator to consider how the problem can be fixed. The CMA’s response has said it has found damaging practices by firms, which exploit unsuspecting customers and that it wants to see urgent action.
The Association of British Insurers (ABI) and the British Insurance Brokers’ Association (BIBA) say they have now written new Guiding Principles and Action Points. The new rules oblige firms to display the previous year’s premium on renewal notices. But it’s still up to the consumer to notice the difference.
Is Your Home Insurance Coming Up for Renewal?
If it is, then don’t delay. Make sure you get alternative quotes to see if there is a better deal out there in the market for you.
If the above isn’t an incentive to arrange your home insurance, then here’s another one.
The more in advance book your policy, the lower your premiums are likely to be.
Being savvy about the cheapest time to buy your cover may be a huge cost-saver. Panic-buy at the last minute and you could be losing out.
Research carried out by Moneysavingexpert.com shows that buying your home insurance roughly three weeks ahead of the start date will bring up the cheapest price. The difference between buying ahead and last minute can be 25%.