The cost of being loyal – why staying with your insurer could cost you £463

Fact: the cost of staying put has been costing 28 million people £3.4bn a year. Now, grab your wallet and open it. Pull out a bank card, any bank card. 

Now think about how long you’ve had that account. 

The chances are it has been quite a while. You may not remember applying. In fact, there’s a real possibility you’ve had it since childhood because we are all creatures of habit. We stick to what we know, even if we know it’s not all that great for us. 

Nor is this loyalty restricted to banking, not by a long shot. 

According to Compare the Market analysis, almost half (46%) of motor and home policy holders auto-renewed with their insurance provider in the last year and, on average, had stayed with their existing insurer for more than four years. 

Despite the fact that some people who auto-renewed both home and motor policies could be paying £463 more for their insurance than those who shopped around. 

So why do we stick, not switch? 

Breaking up is hard to do 

Behavioural economists are those smart people who bash psychology, emotional response and economic theory together to work out why we make a whole range of consumer decisions that don’t seem to make any sense at all. They regularly describe this enduring stickiness as ‘behavioural loyalty’. 

Some of that loyalty could be down to active preference, for example. You may truly feel a positive connection to your broadband provider or mortgage lender. Maybe. 

But our reluctance to switch, even our reluctance to even consider switching is often much more complicated than that. 

Experts look at habitual decision-making and behaviour too. Perhaps we find it too much of a hassle to do things differently or believe all those other banks and bank accounts are just the same. In which case, what’s the point? 

And while that may mean we’re probably not going to be pushed into changing our service or product providers, we may not jump either if we feel the barriers, like cost, the time it takes to find an alternative, or just the paperwork involved, represent too large a hurdle. 

Add this psychological captivity to our habit-forming nature and suddenly the irrational decision to stick with something starts to make a bit more sense, even if you're deeply unimpressed with it and are fully aware there could be better, cheaper options out there. 

Meanwhile, businesses put a huge amount of time, effort and money into nurturing our loyalty, not least because it's easier to keep the customers you have than it is to constantly try to sign-up new ones. 

With strong forces like these at play, it isn’t any wonder we sometimes struggle to walk away? 

Which is fine, possibly, if hanging onto the same accounts and services for years on end isn’t detrimental to your wealth. Unfortunately, it probably is, and not just for us as individuals. 

If we, as existing customers of any service, experience a drop in quality or increase in cost, the assumption is that we would up sticks pretty sharpish and find a better, cheaper deal. 

But the fact that we often don’t puts a big hole in the kind of dynamic competition that, among other things, helps keep a lid on costs. 

The result is frankly astonishing. 

Don’t forget that while you may think that this article is brilliant, it is intended for information purposes only and should not be mistaken for financial advice or recommendations.