By Trevor Clawson.

The prospect of buying home insurance is not, on the whole, something that sets consumer pulses racing in anticipation. Yes, insuring bricks and mortar and the treasures that lie within against fire, flood and theft is a necessity but few of us can gain much satisfaction from the process of comparing providers and choosing a policy. And when twelve months pass, the temptation is simply to ‘auto renew’ without having another look at what the market has to offer. After all, why go the time and effort of trawling through comparison sites when you can be reasonably confident that your current insurer will reward loyalty by continuing to provide adequate cover at a competitive price?

But according to a new report from the Consumers Association, those who simply carry on with the same policy year after year may well be losing out, and it quite a big way. The Association found that premiums paid by customers who stuck with the same insurer over a number of years were, on average, significantly higher than those secured by those who shopped around for the best deal. What’s more, over a number of years, the gap between the amounts charged to first-time and loyal customers became progressively wider.

The Longer You Stay, The More You Pay

Based on interviews with more than 5,000 insurance buyers, the survey found that the average home and contents policy for a new customer came in at £195. Amongst those who had been with their insurers for one to two years, the average premium was slightly higher at £200. However, those who stayed loyal for between four and six years were being charged considerably more – to be precise £300. Holders of ‘contents only’ policies faced similar differentials, with new customers paying around £100 and that sum rising to £140 for those who kept the same provider for four to six years.

But as the is the case in other sectors, consumers are reluctant to switch. The Consumers Association found that 69% of home policyholders had been with their insurers for more than a year.

Penalising Loyalty

It is a familiar pattern. Whether buying energy, broadband, other types of insurance, or indeed a mortgage agreement, consumers are advised both to shop around before the initial purchase and subsequently consider changing supplier in order to secure the best available deals ongoing.

But on the face of it, the insurance industry should be a lot more competitive in its pricing than providers in, say, the gas and power sectors. It is easy to buy policies online – and thus compare providers offers – and that should, in theory, drive prices down.  What’s more, unlike energy prices where there are multiple tariffs based on a wide of factors, home policy pricing is relatively straightforward and transparent, making it easier to compare apples with apples when deciding on a provider. In an ideal world, this should be reflected in keen prices for everyone, not just new customers.

Fierce Competition

Home Insurers Charge Loyal Customers More

But according to the Consumers Association, it is the fierce competition in the market that is causing insurers to penalise loyalty.

Put simply, with so many policies available, providers are having to fight for every new customer. In practice, this means offering low rates to those coming on board for the first time, paid for by those existing customers who don’t notice prices jump on renewal. This situation is – ironically – exacerbated by online price comparisons. When consumers can see the headline prices charged by perhaps half a dozen insurers ranked on a single page, providers are forced to go as low as possible to acquire new business. Again, the cost of this falls on long-standing policyholders.

Who Loses Out?

It’s a trend that hits some sections of the consumer market harder than others. While online comparison sites make it easy to switch providers, those who don’t have easy access to the internet and who are not – as the Consumer Association puts it –  ‘financially savvy’ are the most likely to lose out.  When you break it down to demographics, it is the elderly who tend to pay above the odds for their insurance products.  Indeed, one in six of those aged over 75 have been with the same insurer for more than 10 years.

A Move Towards Fairness.

Some work is being done to create a fairer market. In May of this year, the Association of British Insurers (ABI) and the British Insurance Brokers Association (BIBA) published new guidelines for members that were expressly designed to address the problem of ‘excessive premium differences’.

The organisations called upon members not to support or implement business policies that would result in loyal customers paying significantly more. Equally important, members were told that the undoubted commercial pressures cause by online price comparison sites should not result in large price differences.

As ABI chairman Andy Briggs commented.

“Insurers do a great job for their customers, providing peace of mind and financial help when they most need it, but the renewal market simply doesn’t work where loyal customers get charged much more than new customers.” 

It won’t – as Briggs also pointed out – be an easy problem to solve, not least because of the mixed messages being sent out to consumers. On one hand, we are all encouraged to use price comparison sites and at an individual level, this saves money. Step back to look at the bigger picture and there is a danger that all policyholders have to keep switching providers, whether they want to or not if they are to avoid price hikes. 

Avoid Paying More

So what can you do as a consumer to avoid paying more?; The short answer is to pay close attention to renewal notices and respond to any price increases by either sourcing another supplier or haggling with the existing provider. Insurers don’t necessarily want to lose business, so ringing a call centre to cancel may also provide an opportunity to secure a discount. In some cases, it may be possible to cancel and then come back as (effectively) a new customer.

In the longer term, the ABI and BIBA are consulting on effective measures to prevent distortions in the renewals market.