Around 13 million households across the UK are paying a penalty for staying with the same home insurance provider.
People who renewed their policy over 5 years with the same provider pay an average of 70% more than new customers, according to research by the Financial Conduct Authority (FCA) and Citizens’ Advice.
Yet most people aren’t even aware that the penalty exists. Which? explains how to make sure you’re getting the best home insurance deal.
Premium hike for long-term customers
Home insurance is the most common insurance product used by people in the UK – but many are paying significantly more for failing to switch providers.
The standard length of a home insurance policy is one year. After this, time most policies renew automatically, unless a customer opts out. At renewal, insurance providers tend to increase the price of a policy, the FCA warned.
Customers who renew their policy after one year pay an average of 8% more than new customers, while those who renew over 5 consecutive years pay an average of 70% more – even if they negotiate lower premiums upon renewal.
Overall, 2 in 3 home insurance customers have experienced a hike in their renewal price.
Most customers affected by the loyalty penalty don’t even realise that they are paying the additional cost, with people who first purchased their policy over 4 years ago least aware. Customers aged over 65 are also more likely to be affected, accounting for 32% of people paying the loyalty penalty.
How are home insurance premiums calculated?
Home insurance providers use a wide range of factors to determine how much a policy is likely to cost them. These can include the property’s size and location, whether any add-ons are selected, and whether any previous claims have been made.
As a result, prices paid by customers can vary significantly, even for two households with similar properties on the same street.
But the length of time the policyholder has been with the insurer has no impact on its cost – indeed, the FCA found that the average expected cost of a potential home insurance claim is exactly the same for new customers as it is for those who choose to renew. So while renewal customers end up paying more, they pose no risk of additional cost to insurers.
- Find out more: how to renew your home insurance.
In light of evidence showing the rising cost of home insurance premiums, the FCA introduced new rules to make renewal charges clearer for customers.
The changes, which came into effect on 1st April 2017, require insurers to:
- Disclose last year’s premium at each renewal , so it can be easily compared with the new premium offered
- Encourage consumers to check their cover and shop around for the best deal at each renewal
- Identify customers who have renewed four or more consecutive times and give them an additional message encouraging them to shop around
- Communicate this information in a way which draws attention
Further details about the changes can be found on the FCA’s website.
- Find out more: home insurance company reviews.
What can I do?
Finding your way around the insurance market can be tricky. It’s important to contact your provider to find out your renewal date and give yourself enough time to shop around. Take a look at our short video on how to find the best home insurance deal.
For more tips, check out our comprehensive guide to home insurance. It’s designed to help you at each stage of your home insurance journey – from what home insurance actually covers to making a claim.