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

Written by
Kate Hughes
Insurance expert
6 December 2021
5 min read
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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. 

Ofgem reports that around a fifth of gas and electricity consumers have never changed their energy supplier 

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. 

The loyalty penalty costs consumers £3.4bn a year 

How much? 

The unnecessary cost of staying put, known as the loyalty penalty, is what gives us that 28 million people losing £3.4bn a year, according to the Competitions and Markets Authority (CMA). That includes the people who can least afford unnecessary costs, such as the elderly and vulnerable. 

The real kick in the teeth is that those figures only cover five kinds of financial areas: mobile phone contracts, broadband, household insurance, cash savings and mortgages. The UK consumer deals with hundreds more every year. 

Lots of things have been introduced to try to overcome this sticking habit. 

The Current Account Switching Guarantee was introduced to try to overcome any worries about ease and simplicity. It ensures that all the hard work will be done for us, quickly and efficiently. 

Whose job is it anyway? 

According to the Financial Conduct Authority (FCA) more recently, the focus has shifted towards pushing businesses to improve their competitiveness. 

Things like automatic renewals on car insurance which alone unnecessarily costs British motorists hundreds of millions of pounds every year - are regulated and looked at more closely. 

According to the Financial Conduct Authority (FCA) more recently, the focus has shifted towards pushing businesses to improve their competitiveness. 

In fact, the new FCA rules which come into effect on 1 January will prevent insurers from offering new customers better deals than loyal customers. While this seems like good news, it could lead to insurance providers raising prices for both new and existing customers in the new year to make up the difference… and cover their loss in revenue. 

So despite lower prices, there are signs that premiums could start to rise across the board in the near future. And as the country recovers from the latest chapter of the pandemic there could be more cars on the roads and homes could be emptier for longer periods - which could increase claims and push up insurance prices. 

So ultimately, with businesses reluctant to give up lucrative easy profits, it’s on us as consumers to keep an eye on the cost and benefits of the products we buy, keep and, if necessary, quickly ditch. 

Your wallet will surely thank you for it. Perhaps it won’t have that old bank card in it next time. 

3 things to do right now...

Pick one product or service you use regularly and decide whether you’re happy with it. If you’re not, try to work out what’s preventing you from switching. 

Compare the market. What alternatives are out there, and what tools could you use to easily switch to a cheaper, more appropriate, or just plain better alternative? 

Set aside half an hour to  act - either deciding you’re happy to stick for good reasons you can clearly identify, or to press ‘go’ on a new deal. 

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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.