Home insurers making 'all of their profits' by overcharging loyal customers, says Citizens Advice

10 April 2019
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Home insurance companies are making all of their profits by “exploiting” loyal customers who stay with them for six years or more, new research from Citizens Advice reveals.

Loyal customers are charged on average £325 for their sixth year of insurance compared to £172 for new customers – nearly twice as much, according to the charity.

It says home insurance companies are making 100% of their profits from loyal customers who stay with the same provider for six years or more.

Loyal customers are paying on average £1,596 over six years compared to an average of £1,032 for customers that switch around providers.

Citizens Advice says that in 2016 there were 9.3 million policies where customers had been loyal to their provider for six years or more and only 6.9 million policies where customers switched after a year.

The charity is particularly concerned that vulnerable people, particularly those suffering from poor health, are likely to be paying the most for their home insurance.

It estimates that 3.75 million policies have been held for 11 years or more and over seven in 10 of these customers are potentially vulnerable. 

In one example Diane, a 76-year-old pensioner from Kent, had the same provider for over 10 years and suffers from severe arthritis. Diane says she received a renewal letter increasing her premium from £1,500 to £3,500 a year.

She says: “I was shocked, really confused and also sad that they expected me to pay so much.

“I feel I have been taken advantage of, they are just trying to make as money as they can. I don’t understand how my premium has gone up so much in the last couple of years.

“For people of my age to try and shop around is difficult but as my renewals come in I will have to try as being a loyal customer does not pay.”

Loyalty penalty

Research from Citizens Advice has found that consumers are being ripped off to the tune of £4.1 billion a year by businesses that take advantage of their loyalty.

Last year, the charity submitted a super complaint to the Competition and Markets Authority on consumers being ripped off with a loyalty penalty for broadband, home insurance, mortgages, mobile phone contracts and savings.

Gillian Guy, chief executive of Citizens Advice, says: “It is appalling that home insurance companies are making all their profit from exploiting loyal customers.

“What makes this worse is that vulnerable people are likely to be the most loyal to their provider.

“Since we submitted our super-complaint about the loyalty penalty, some companies have rightly promised to treat their customers better. Yet many more are still choosing to make their profits off their most loyal and vulnerable consumers.

The charity is calling on the financial watchdog, the Financial Conduct Authority (FCA) to act quickly. 

Ms Guy adds: “The CMA’s response to our super-complaint was clear that regulators must come up with a plan to tackle the loyalty penalty by June. The clock is ticking, the FCA must act quickly to stop this systematic scam.”

The Association of British Insurers says whether a firm makes a profit or not depends on many factors which the figures overlook.

Hugh Savill, director of regulation at the ABI, says: “The insurance industry has already acknowledged that fierce competition between insurers for new business can result in long-standing customers losing out.

“Last year, insurance became the first and only sector to take voluntary, industry-wide action to tackle this issue, with firms committing to review premiums charged to customers who have been with them for more than five years.”

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