Home insurers make 100 per cent of profits from loyal customers
Home insurance companies make 100 per cent of their profits from penalising loyal customers, new research shows.
A study published today by Citizens Advice found home insurers make all their profits – amounting to over £1bn a year – from loyal customers holding policies for six years or more.
The research showed that loyal customers in their sixth year of insurance pay an annual premium of £325 a year, almost double that of the £172 average paid by new customers.
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Citizens Advice made a “super complaint” to the Competition and Markets Authority (CMA) in September in connection to the loyalty penalty in the mobile, broadband, home insurance, mortgages and savings markets.
In response the CMA asked the Financial Conduct Authority (FCA) to examine pricing practices in the insurance market and to consider pricing interventions to prevent people being exploited by firms.
The move this week by over 50’s insurance and travel company Saga to offer three-year fixed insurance deals in motor and home insurance was partly to stay on the right side of regulators.
Citizens Advice said it was particularly concerned that home insurance companies make over half of their profits from potentially vulnerable people.
The research shows people who are vulnerable due to issues such as poor health are likely to be paying the most for their home insurance.
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Citizens Advice estimates 3.75m policies have been held for 11 years or more and 71 per cent of these customers are potentially vulnerable.
It is calling for the FCA to put forward concrete solutions to the loyalty penalty as part of its market study.
Gillian Guy, chief executive of Citizens Advice, said: “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 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.”