Half of drivers think it should be illegal for insurers to overcharge loyal customers
A survey by GoCompare found 61% of Brits feel insurers reserve the best prices for new customers at the expense of loyal policyholders.
While businesses such as retailers, restaurants and hotels reward customers for their loyalty, it has become common practice for insurers to charge existing customers higher premiums than new ones.
GoCompare said a customer who switched provider when their car insurance came up for renewal could save almost £250.
But the findings show that, at their last, renewal 62% of motorists allowed their car insurance to automatically renew.
The so-called ‘loyalty penalty’ has already attracted the attention of regulators, with the Financial Conduct Authority (FCA) taking steps to force insurers to improve renewal information.
Renewal letters must now show both the renewal cost as well as the premium paid the previous year as well as wording to encourage customers to check the level of cover offered is still appropriate. They must also include a reminder that they can compare prices and levels of cover offered by alternative providers.
Where a customer is renewing for the fourth or subsequent time, insurers must alert them to the fact they could get a better price if they shop-around.
However, despite the FCA’s new renewal regime being in force since April 2017, the research found that at their last renewal, only 46% of drivers remembered seeing last year’s premium alongside their renewal price.
Name and shame
Last year, the Competition and Markets Authority (CMA) released a series of recommendations to tackle unfair loyalty penalties. These include naming and shaming insurers who overcharge loyal customers, and using targeted price caps to protect vulnerable customers.
Lee Griffin, founder of GoCompare, said: “Car insurance is a market where dual pricing has existed for a long time and where comparison sites have made the practice far more transparent for people who can often see exactly how much their current insurer is discounting for new customers.
“There’s absolutely no good reason why insurers should be able to do this – other than they’ve been able to get away with it. Loyal customers have every right to feel ripped-off.”
He added: “The FCA and CMA have taken positive steps to improve the transparency of renewal pricing, encourage customers to shop-around, and to close the gap between premiums for existing and new customers.
“But the onus remains on customers to act to avoid paying more than necessary, rather than on insurers to change their pricing policies. It’s high-time the insurance industry reset the balance towards loyal customers.”