Insurance companies admit loyalty never pays
Banks, insurers and utility suppliers typically reserve their best motor policies, energy tariffs, savings and mortgage rates for new customers, while letting existing ones languish on inferior deals.
What may have been a marketleading deal when you first took it out can quickly become an also-ran, costing you hundreds or even thousands of pounds a year.
Insurance companies have belatedly admitted there are “excessive differences between new customer premiums and renewals” and are pledging to crack down on the problem.
So will long-standing customers finally get the rewards they deserve?
Last week, the Association of British Insurers (ABI) and British Insurance Brokers’ Association (BIBA) launched a set of guiding principles to offer a fairer deal to long-standing motor, household and travel insurance customers. ABI Chairman Andy Briggs said: “The renewal market simply does not work where loyal customers get charged much more than new ones.”
This is a welcome admission, even if insurers shifted some of the blame onto customers for expecting to get cheaper premiums by shopping around at renewal, which they claim makes it difficult to treat everyone equally.
Banks Insurers and brokers will now need to make it clearer that new customer premiums apply only for that year, and renewals may be higher.
They must check that customers who have been loyal for more than five years are treated fairly. Kevin Pratt, consumer affairs expert at MoneySupermarket.com, said insurers admit they have been penalising loyalty for years: “Shopping around remains the most effective way to keep the insurance industry honest.”
Golden rule with car insurance: Compare your renewal cost every year
Car insurance is the classic example of loyalty working in favour of the insurer rather than the customer, yet one in 10 has never switched policy, according to research from GoCompare.com.
Its figures show that a 55-year-old doing up to 10,000 miles a year in a three-year-old Honda Civic 1.6 i-DTEC S five-door could get cover from £313 a year, but others are quoting between £511 and £1,243.
The golden rule is to compare your renewal cost every year and if unhappy, haggle the price down or switch.
More than 12 million households are on a standard variable tariff with their energy supplier
More than 12 million households are sitting on their gas and electricity supplier’s standard variable tariff (SVT), typically their most expensive deal.
Ben Wilson, energy expert at GoCompare, said almost half of homes have either been with the same energy firm for over five years or have never switched: “That is bad news for loyal customers who pay through the nose for gas and electricity, year after year.”
The difference between a best buy tariff and an SVT can be hundreds of pounds a year. Wilson added: “The best buy Northern Glory tariff from Eversmart costs on average £801.89 a year, while the SVT from British Gas will cost an average of £1,161 from May 29, almost £360 more.”
The average energy bill is £1,292, which suggests that some can save even more. He said: “Households can save a packet by switching from their SVT with the Big Six to one of the growing number of challenger utility suppliers.”
Anna Bowes, director at independent advice site SavingsChampion.co.uk, said loyalty certainly does not pay in the savings market: “Banks and building societies depend on your inertia, cutting rates on older accounts, while enticing new customers with better deals.”
There are a handful of honourable exceptions, she added, citing Coventry Building Society and RCI Bank.
However, the Virgin Money Easy Access Saver Issue 31 is more typical.
It currently pays 1.01 per cent, while all previous issues pay just 0.25 per cent.
You need to be particularly wary of accounts with an introductory bonus. For example, the Post Office Online Saver Issue 30 currently pays 1.22 per cent, but this on inertia, rates older includes a bonus of 0.97 per cent for 12 months, after which you get 0.25 per cent.
Bowes said: “Diarise when your bonus is due to end, then move to a better account.”
London & Country Mortgages associate director David Hollingworth said there is often a wide difference between lenders’ standard variable rates (SVRs) for loyal customers and mortgage deals for new ones.
For example, Yorkshire Building Society has an SVR of 4.99 per cent, but currently offers a two-year fixed rate charging just 1.32 per cent to 65 per cent loan-to-value, albeit with a £1,495 fee.
There are countless other examples and many borrowers are paying thousands of pounds a year in unnecessary interest as a result.
Hollingworth said some lenders are working harder to keep hold of existing customers: “Barclays and Nationwide both offer existing customers keenly priced remortgage deals.”
Lenders can be slow to alert customers their existing deal is ending at which point they will shift to a more expensive SVR. “Savvy borrowers still need to be ready to move on if unhappy,” Hollingworth added.
It is welcome that insurers are finally taking action, but shopping around is still your best defence.
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