It’s understandable to assume loyalty will be rewarded, but a report by Citizens Advice in 2018 illustrated this assumption might actually be costing you no mean sum.
According to the charity’s estimates the average household is being overcharged by £877 a year – about 3% of its annual household budget – because it sticks with the same providers for insurance and other services such as mobile and broadband contracts.
In fact, the Financial Conduct Authority (FCA) estimates around six million insurance policyholders are not getting a good deal on their insurance, and if they all switched they could collectively save around £1.2 billion a year.
The additional cost consumers pay by not switching providers has been dubbed a “loyalty tax”. By the FCA’s own reckoning home insurance policyholders pay one of the highest “loyalty tax rates” in the UK, with an auto-renewed buildings and contents insurance policy costing an average of 17% more than a new policyholder might pay.
By contrast, the average motor insurance policies come in at 11% higher for motor policies.
The FCA also found that just 25% of respondents taking out home insurance said that they contacted their providers and tried to negotiate a lower price.
The Competition and Markets Authority (CMA) is taking the issue seriously, initially giving regulators such as the FCA six months to come up with recommendations.
The FCA’s initial report – published October 2019 – suggested firms engage with customers to give them information about alternative deals and automatically switch those paying high prices to cheaper products providing equivalent cover.
However, the pandemic has slowed down follow-up proposals and actions, so for the time being it’s up to policyholders to compare policies themselves if they want to find cheaper insurance.
Why insurance firms auto-renew policies
Car insurance is a legal requirement in the UK, so in many ways it is in the policyholder’s own interests for their provider to auto-renew their policy unless they are told not to, because it means there’s never a risk that the motorist might end up driving without insurance.
Home insurance isn’t a legal requirement but it is usually a contractual one if you have a mortgage, so when a home insurance policy is auto-renewed it ensures the homeowner doesn’t run the risk of breaching the terms of their mortgage contract.
Of course, insurance renewal quotes are often higher than the price the policyholder paid in their first year, because many insurance providers offer discounted premiums for the first year.
That’s why it is always a good idea to shop around for the best quotes rather than automatically accepting your existing provider’s renewal quote.
Many still unaware of the benefits of shopping around
Even though many insurance policies include a clause that allows the insurance provider to automatically renew the policy unless the policyholder opts out of the renewal, there is never an obligation to stick with any one provider and indeed 35% of respondents –for both home and motor insurance – reported to the FCA that they had switched their policy.
This leaves 65% of policyholders that didn’t move from their existing insurance provider, for reasons such as they are unaware that they aren’t obliged to accept that provider’s renewal quote, or are simply unaware of the potential benefits of shopping around.
Tips for keeping the same cover for less spend
The Department for Work and Pensions’ Family Resources found that 16% of UK households in 2018 would like to have contents insurance but cannot afford to do so.
We’re now in a recession, which means we’ll all be looking at our outgoings more closely. So, what should you bear in mind if you’re keen to save on your home insurance without compromising the protection you enjoy?
It’s a highly competitive market – The FCA points out that over half of home insurance buyers don’t appreciate this. You’re not tied to any provider and should consider the options you have. You’re in a position of power.
It pays to negotiate – 60% of the policyholders that asked their providers to lower their premiums succeeded – and for the same level of cover and excess.
It’s easy to shop around for the best deals – Shopping around doesn’t have to be difficult. Price comparison websites such as Quotezone.co.uk are a quick and easy way to compare policies from hundreds of providers in a matter of minutes.
Your timing matters – When it comes to renewing your insurance, timing can make all the difference. It’s best to renew around three weeks before your existing policy expires, because around this time there is usually a definite dip in quoted premiums.
Of course, price isn’t the only deciding factor, and you might have good reasons for sticking with a provider even if they aren’t the cheapest. Many people like the reassurance of remaining with well-known brands and appreciate great customer service.
However, even if you aren’t planning to switch, it still makes sense to compare policies from a range of different providers, because when you’re armed with all the right information you’re more likely to get the best policy at a competitive price.
Mansell Purdy is an insurance comparison expert at insurance comparison website Quotezone.co.uk
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