An insurance “loyalty trap” is costing UK households more than £450 a year, according to figures from a leading price comparison site. Research from CompareTheMarket.com shows households who let their insurance policies auto-renew are spending an extra £456 every year compared with those who shop around.
The CompareTheMarket.com study of 2,000 UK adults found more than half (51 percent) of households saw their home and car insurance premiums increase at the point of renewal in the past 12 months, with costs rising by an average of £81. In contrast, those who switched provider paid an average of £262 less for motor insurance and £113 less for home insurance than those who stay put year after year.
The news comes in spite of falling insurance prices across the market, with car insurance quotes dropping thanks to reduced accident rates during lockdowns. As a result, a quarter (28 percent) of households said their premium with their existing provider fell at the point of renewal, with an average price reduction of £56. However, CompareTheMarket.com says that’s less than half the amount people could be saving by comparing deals.
On January 1, however, the rules surrounding insurance renewals are set to change, with insurance firms banned from offering new customers better deals than those who are remaining loyal to the company. The Financial Conduct Authority (FCA) says the rules are designed to prevent insurers taking advantage of those who don’t regularly switch their policies.
However, while that sounds like good news for loyal customers, CompareTheMarket.com says it could cause insurance providers to raise prices for both new and existing customers next year as they strive to “make up the difference and cover their loss in revenue”. The company has warned that prices could rise “across the board in the near future”, and drivers’ return to the roads could cause accident rates to rise, increasing inflationary pressure on premiums.
“Although the upcoming changes to insurance pricing should end the loyalty penalty, people should be careful not to fall into any traps of assuming they are getting the best offer,” said Ursula Gibbs, the director of CompareTheMarket.com.
“The gap between those who auto-renew and those who shop around currently stands at hundreds of pounds, illustrating just how crucial it is that people continue to compare prices to ensure they get the best deal available. Shopping around online and switching providers regularly is one of the best ways to ensure you are not paying over the odds, potentially saving hundreds of pounds each year. Don’t get complacent over your renewal price; check to see whether you can get a better deal elsewhere.”