Loyalty premium customers are getting a better deal
Long-standing insurance customers often face a so-called ‘loyalty premium’, paying higher premiums than new customers or those who regularly shop around.
Following an insurance industry initiative to secure a better deal for these long-standing customers, the insurance sector is seeing some signs of improvement.
According to the Association of British Insurers (ABI), the initiative which was launched two years ago is bearing fruit.
The Guiding Principles and Action Points for General Insurance Pricing (GPAPs) initiative were launched by the ABI and BIBA in May 2018.
This initiative was designed to help address excessive price differences between new customer premiums and subsequent renewal premiums, resulting in the ‘loyalty premium’.
Back in 2018, the insurance sector was the first to take positive, collection action to address the loyalty premium.
Some of the commitments in this initiative included prioritising better outcomes for long-standing customers at company board or senior management level.
Insurers also committed to communicating clearly with their customers that renewal premiums may be higher, and reviewing their approach towards customers remaining with them for five years or longer.
Insurers also needed to review the outcomes for their most vulnerable customers.
Reviewing the progress achieved from this initiative in the past two years, 18 insurers covering 85% of the motor and home insurance markets, were surveyed.
All of those firms had incorporated the initiative into their processes for deciding on renewal premiums, making the issue a priority for the board or executive level.
Of the 18 insurers surveyed, 13 went further than the regulatory requirements on renewal pricing, alerting new customers that the new customer premium only applies in year one and that their renewal premiums may be higher.
All of the firms that took part in the survey had implemented a review process on renewal pricing, with 94% by gross premium having a specific focus on customers who have been with them for five or more years.
These firms have put in place processes to identify and review outcomes for vulnerable customers at renewal, with the remaining firms planning to do so.
In total, there have been more than 8.5 million pricing interventions in the motor and home insurance market during the past 20 months, worth a total value of £641 million.
The firms taking part in the survey reported an average saving per intervention ranging between £40 and £150, for the majority of interventions.
James Dalton, ABI’s Director, General Insurance Policy, said:
This review shows how positively insurers have responded to implementing the Guiding Principles and Action Points. The number of insurer interventions and range of average savings are benefitting millions of customers. There is a clear commitment from the industry to continue to deliver on the Principles, as their benefits to customers should grow over time”.
There remains more to do, and we will continue to work with the FCA in its general insurance pricing review.