It is hard not to conclude that loyalty is for losers. And in no area is this more true than when it comes to general insurance. The business we give insurers for covering our cars and homes in the event of something untoward happening gets little reward.
Instead, more often than not, we end up getting penalised with a premium that is far higher in the following and subsequent years than the one we pay in the first year.
Insurance companies too often decide that existing customers are fair game for some financial exploitation, reserving their best deals to entice new customers on to their books.
And it works, for various reasons.
Here is what typically happens when you take out a home insurance or a motor policy with a new company.
You check out the market and eventually sign up with an insurance company that reels you in with an attractive premium. You will probably have managed to undercut what you previously paid.
You are happy to pay what you consider a decent price.
But come renewal time, you are shocked to get a quote which is a multiple of what you paid last year.
Loyalty has been ditched. This dual-pricing works because a certain percentage of people will accept the higher price they are being charged after the first year‘s tasty deal has been withdrawn.
Two things will work in favour of the insurers – inertia, and a belief among many people that they should accept the higher premium quoted in year two.
The reality is that the higher premium in year two is nothing more than a shoddy try-on. You must challenge it.
The dual-pricing practice is particularly a problem when it comes to motor insurance, where premium rises in the last few years have been savage.
In Britain, the consumer protection regulator has told insurance companies to stop discriminating against existing customers in favour of new business.
The UK‘s Financial Conduct Authority said: “Firms should not give long-standing customers less attention than new customers or treat them in a way which results in poorer outcomes.”
The Central Bank here says it has no role in pricing, so will not act to end dual-pricing.
That is why it is significant that Aviva has committed to ensuring existing customers get the same premium rates as new clients.
That move by one of our largest insurers will force other insurers to examine their practices.
This means that, in time, loyalty will be rewarded by all insurers, and not punished.