Staying with your car insurer could cost you £130 extra
Drivers who stay with the same car insurer for a long period of time can end up paying more than £130 extra over the course of a year, an industry watchdog has warned.
The organisation released numbers showing how firms exploit customer loyalty by raising their premiums year on year.
The Financial Conduct Authority (FCA) found that a motorist who doesn’t swap providers for eight years will end up having to pay £131 per year than if they had shopped around for another deal.
These revelations have angered both campaigners and MPs.
James Daley, who is from the consumer group Fairer Finance, said: ‘The more loyal a customer is, the more they get ripped off and the higher price they pay. This isn’t easy to solve.
‘Price-comparison websites create fierce competition for new customers, and firms are looking to recover the money they lose on cheap introductory offers by getting it from customers who stay with them.’
Wes Streeting, who is from the Labour party, and a member of the Commons Treasury committee, said:
‘Good companies should recognise and reward loyalty from their customers. These shocking figures are a reminder of why shopping around is really important to get the best value for money.’
It has long been known that the insurance market has loyalty penalties, as they bring customers in with low offers for the first year, and then gradually raise their premiums every 12 months until they are much more expensive.
The FCA brought in measures two years ago to make insurers include any price increases on their renewal letters.
In its latest figures, it said that a driver who shops around each year will save an average of £64, and the amount will raise each year if the customers don’t leave.
There is increasing pressure on insurers to take action on loyalty penalties.
The Competition and Markets Authority said last month that loyal customers were paying £4 billion over what they should be paying for some financial services.
Around one million people are now paying too much on their mortgage and 12 million are paying too much for insurance.
Car insurance firms have also encountered criticism for charging customers more money if they want to split their yearly bill into monthly instalments. Big insurers usually charge interest on this as if it is a loan.
Therefore, some experts have estimated that the big insurers now make as much as £500 million annually from doing this.
A spokesperson for the Association of British Insurers said: ‘Three quarters of customers benefit from shopping around, but we accept there needs to be a better balance between the deals offered to new customers and the interests of long-standing customers.
‘Insurance is the only sector to have already taken voluntary, industry-wide action to tackle these concerns, and we are working constructively with the regulators.’
To avoid being caught in the trap of loyalty penalties and losing money, you should always shop around for the best deal on your car insurance. Don’t stay with the same provider too long, instead use a price comparison tool like A Spokesman Said to check out the deals on the market, and find the right one for you.
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When did you last switch your car insurance provider?
Last year 65% of customers didn't switch their car insurance to try and get a better deal.