UK Insurers are at risk of being banned from charging long-time customers a “loyalty penalty,” The Guardian reported. In an evaluation by the United Kingdom’s Financial Conduct Authority (FCA), insurance firms have been overcharging loyal clients’ premiums knowing that they have low chances of switching insurers
Around 6 million auto and home insurance holders have been paying insurers a “loyalty penalty” of £200 every year. This charge comes as huge premium hikes for customers who have been with the company for a long time.
To decrease the chances of long-term clients switching to another company, insurers make such move much more difficult. They also implement various “practices to raise barriers to switching” including automatic renewals of insurance coverage.
Of the six million customers affected, a huge chunk of those being overcharged belongs to vulnerable groups including the elderly and low-income individuals. These groups have paid a combined amount of more than £1.2 billion in annual payments as companies refuse to offer them good deals.
The FCA posits that companies are targeting these groups because they are “less likely to shop around online.”
The Guardian followed a case involving a “profoundly deaf couple aged 91 and 92” who received a home coverage renewal letter asking them to pay 20% more than what they were paying. This brings their premium up to £579 for their semi-detached home in the Midlands. However, when their son asked for a quotation while posing as a new client, the premium quoted was £108.
In response to such practices, the FCA considering the possibility of banning these insurance providers. The regulator is also looking into “forcing companies to put customers on the cheapest equivalent deal” and other strict measures to protect new and long-term clients.