Home insurance firms make £1bn a year from loyal customers
Home insurance companies make more than £1bn in profits each year from loyal customers who hold their policies for six years or more, Citizens Advice has found.
Research by the charity shows that loyal customers pay an average annual premium of £325 for their sixth year of insurance – almost double that of new customers (£172).
The charity also found that home insurance companies make 51% of their profits from customers who are defined by the market’s regulator as ‘potentially vulnerable’. This may be due to issues such as poor health.
These customers are likely to be paying the most for their home insurance. Citizens Advice estimates that 3.75 million policies have been held for 11 years or more and 71% of these customers are potentially vulnerable.
According to the most recent data that is available for 2016, Citizens Advice found there were 9.3 million policies belonging to customers who had been loyal for six years plus. However, there were only 6.9 million policies where customers switched after a year.
Regulator must act soon
The charity is calling for the financial regulator, the Financial Conduct Authority (FCA), to identify solutions and call an end to the ‘loyalty penalty’ as part of its insurance market study.
Gillian Guy, chief executive of Citizens Advice, described the findings as “appalling”.
“What makes this worse is that vulnerable people are likely to be the most loyal to their provider,” she said.
“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,” Guy added.
She pointed out that the Competition and Markets Authority (CMA) responded to the super-complaint by asking regulators to 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,” she said.