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The Actuary The magazine of the Institute & Faculty of Actuaries

UK drivers caught in £1.2bn insurance ‘loyalty trap’

Millions of British drivers are automatically renewing their car insurance every year and are overpaying by £1.2bn as a result, research by GoCompare has revealed.

Insurers "rely on apathy" to charge higher prices ©Shutterstock
Insurers "rely on apathy" to charge higher prices ©Shutterstock

The study found that 4.6 million drivers rolled over their car insurance without looking for a cheaper premium at their last renewal – each missing out on up to £262.41.

Loyalty was the main reason drivers gave for automatically renewing their policy, cited by 30% studied, followed by a lack of confidence switching, mentioned by 22%.

The research also found that just 35% of drivers compare their renewal offer with what they paid the previous year, and that only 17% read through renewal information.

“Insurers typically use their most competitive offers to attract new customers and rely on existing customers’ apathy to charge higher renewal prices,” said GoCompare founder, Lee Griffin.

“It’s time for people to take control of their finances and consider how much they could be saving by switching.”

Despite the large potential savings, the study found that 62% of drivers allowed their insurance to automatically rollover at their last renewal, with just 15% checking for better deals.

And the findings show that nearly a third of motorists pay for their insurance in monthly installments, particularly those on lower incomes, despite this typically being more expensive.

This is largely due to insurers imposing fees and interest changes, meaning that those who can least afford it often end up paying more for car insurance.

“While it may seem more convenient, in the long term it's almost always more expensive than paying for your insurance up front in one lump sum and switching,” Griffin added.

This comes after Citizens Advice found that eight in 10 loyal customers pay a “significantly higher price” for home insurance, savings accounts, mortgages, mobiles and broadband.

This ‘loyalty penalty’ is estimated to amount to £4.1bn each year, with vulnerable people, such as the elderly and those with mental health issues, disproportionately impacted.

Citizens Advice chief executive, Gillian Guy, said: "It beggars belief that companies in regulated markets can get away with routinely punishing customers for being loyal – the Competition and Markets Authority should come up with concrete measures to end this systematic scam.”

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