Loyalty rewarded - sadly the opposite can be true

The consumer magazine Which? has a lead feature in its January 2018 issue on "why loyalty doesn't pay" noting how providers of motor insurance and other essential services are quietly taking advantage of their most loyal customers (often older customers) whilst offering new customers attractive deals. Sadly you have to haggle these days to get a fair deal rather than meekly accept a high renewal premium as a passive "loyal stuffee". Which" research shows that if you don't actively haggle or switch to a better deal, you will probably pay more than people who do. Providers are usually prepared to offer incentives, typically a reduction in their charge or renewal premium, but only if you ask for it!

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Posted: 171219

See an update
Time to haggle on motor insurance renewals. EON boss reported as saying "it's right for switchers to get the best deal." More
Update: 171220
Haggling doesn't have to be a headache but it's a shame it's necessary. It could be avoided if insurance providers would treat loyal customers as well as they do new ones.
What is loyalty?
We tend to think of loyalty as an attraction to a service provider from the strong positive feelings we have about the quality of the product and service they provide, which leads to a sense of satisfaction. That feeling of loyalty, probably trust too, may overlook the comparative value as we belive the service provider values their loyal customers and would reward them with the best deals. Sadly in many cases that trust is misplaced and worse exploited by the provider as part of their business model!

Providers can take advantage of customers who may not feel sufficiently engaged to start shopping around for a quote, so face near auto-renewals with incremental price hikes. Older age groups are seen as particularly good targets for accepting price hikes with little challenge or next to no haggling - and the service providers know it and exploit it as an intentional part of their business model. So "passive loyal stuffees" are disadvantaged while the market has tipped in favour of those that are prepared to hunt around for a better deal, haggle with their existing provider and if necessary walk away and renew with another supplier. For many older classic car enthusiasts the thought of shopping around and haggling for a motor insurance quote is not attractive, but sadly it's time to rethink loyalty - is it worth staying at any price?

Motor insurance
The Which? magazine article says "like telecoms providers, insurance companies follow the tried and tested method of attracting new customers with a good introductory deal whilst hiking up prices for longer term customers." One useful recent development is insurance companies now have to show last year's premium on your renewal letter so you can easily see how much more you are being asked to pay for the renewal of cover. But note the comparison premium is often the bare premium and not the amount you would pay with the extras and any service charge from a broker.

But with that useful comparison it does provide a convenient check as we saw in our NEWS item in October 2017 where a V8 Register member received the annual renewal notice for his daily car from a well known classic car insurance broker and was astonished to see the premium had increased from £352.61 to £547.02 - an increase of £194.41 or 55%! Naturally he could not begin to understand why there was such a massive increase as nothing had changed in terms of the risk - his driving record or the car. Simply querying the premium brought a reduction of over £100 but even then the renewal premium was still close to 30% higher than the previous year!

In their article Which? has a chart based on their member survey data which shows the typical insurance premium of those people who didn't haggle was some 44% higher than for those who did. In our earlier NEWS item in October 2017 the explanation received from the broker for the large premium increase was set out and to be fair the points mentioned are true contributors to increased motor insurance costs, but what is not mentioned is the skewing of how those increased costs are recovered by the insurers. Simply they use higher premiums for the older and loyal customers on the basis they will cough up and renew and insurers offer lower far more competitive premiums for new customers and for those who haggle their renewals.

Scope and quality of the alternative cover - comparison is not easy when shopping for quotes
For people finally accepting they will need to shop around, whilst comparing premiums quoted is easy, comparing the scope and quality of the cover offered is not so straightforward. You need to clarify the key features of a quoatation - like first loss amounts, the inclusion of cover when driving on Mainland Europe, windscreen cover, no claims discount and so on. With classic car policies you also need to get quotes on the same limited mileage and agreed value basis too.

Haggling tips
The Which? advice on haggling is compile your case before contacting the present insurer or broker - that includes clarifying how long you have been a customer of the insurer and broker, whether you have other cars insured with them and what quotes you have obtained in the marketplace. Then use the three Ps - be polite and pleasant, but persistent. Remember the conversation is one the insurer or broker will be expecting to have with customers like you. Their pricing is set up so they are able to offer discounts to hagglers. The most compelling reason to haggle is that it is seen to work more often than not - Which? say according to their survey, only 31% of people haggled on car insurance but 77% of those were offered some sort of incentive, typically a lower renewal premium.