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Competition watchdog slams insurers for ‘loyalty penalties’

The Competition and Markets Authority has criticised insurers over “stealth price rises” and costly exit fees for loyal customers.

The watchdog looked into areas including cash savings, mortgages and home insurance after charity Citizens Advice raised a so-called “super complaint” over how longstanding customers are treated by financial services organisations.

The CMA has recognised that a “step-change” is needed to make sure consumers can more easily switch providers and avoid unwittingly paying more and more for the same services by having contracts roll over automatically.

The watchdog says: “We have found that the loyalty penalty is significant and impacts many people, including those who can least afford it. Customers rightly feel ripped off, let down and frustrated. They should not have to be constantly ‘on guard’ or spend hours negotiating to get a good deal. This erodes people’s trust in markets and the system as a whole.”

While it was not in the original complaint to be investigated, the CMA said the issue of loyalty penalties was also likely to apply to other areas like pensions too.

To being tackling the issue, the CMA says it will make “bolder use of existing enforcement and regulatory powers to tackle harmful business practices”.

It is also considering intervention on pricing, as well as moves to publish the size of the loyalty penalty in different markets.

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. If the difference is as large as has been suggested, then surely people would be able to identify this through comparison websites without the need for government intervention. A lot of customers apparently need someone to constantly hold their hands.

    • Why should customers have to spend hours every year checking that they are not being ripped off by any of their providers?
      My in-laws and Mum are all in their 80’s and quite frankly are not great at anything to do with the Internet. Also, in spite of putting in exactly what you want to compare, those sites do not give you the exact comparisons and by the time you’ve checked the details to get the right policy, you’re so fed up with it you just want to scream.
      Providers of all policies and products seem to build in ridiculously high margins as even when you’ve spent hours sorting out a better deal, a phone call to your current provider usually gets a decent deal.
      It’s all a complete rip-off and takes up time we could use for genuinely beneficial activities.

  2. A couple of years back my motor insurance renewal came through from Allianz. It had increased by 50%. I went on a comparison website and could obtain the same cover for basically the same price as i’d just paid. Funnily enough Allianz was also quoting at a similar price as well. I rang them up and asked why it had gone up so much and they told me that it was “market conditions” I pointed out that as a new customer I could get the same cover at a similar price with them. I was told that was for new customers only and I could only have it at the vastly inflated renewal premium. Needless to say I moved elsewhere. By the way I’d had no claims or points, just an additional year of unblemished driving.

  3. I switched my Energy Provider today.

    I narrowed it down to four options within 5 minutes.

    I then spent another 10 minutes to weigh up the different Fixed Rate terms.

    I concluded that prices are more likely to continue rising and picked a 2 year as opposed to 1 year fixed.

    Really think the difficulty in switching is overstated.

    Quite apart from that, IMO price caps and prices being set by government is a slippery slope.

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