Penalty for Loyalty: New Study Reveals Loyal Customers Are Ripped Off

Customer Loyalty

The Competition and Market Authority (CMA) has launched an inquiry into a ‘penalty for loyalty’ which led households in coughing out over 4 billion a year on bills levied by household insurance, mobile phone contracts,  broadband services, mortgage, and savings accounts provider.

The investigation carried out by Citizens Advice showed millions of customers who subscribe to top providers of essential services for a length of time become objects of cheap manipulation as they are made to pay exorbitant bills than what new customers pay.

Probe Launched

The complaints lodged by the consumers’ interest group has prompted the Government’s Competitions and Market Authority (CMA) in launching a formal probe into the ‘super-complaint’ on the widespread practice of exploiting consumers with exorbitant charges while they stuck to the providers. Households had an average of £877 per year which summed up to £4.1bn.

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The worst hit are most likely vulnerable customers who paid no heed to the manipulative trend. The elderly majorly fell in this category. In the narrative, Citizens Advice cited the story of a couple in their 90s which the group sought to help after their daughter realized her parents were paying nearly £1,000 annually on home insurance. They became customers of this provider six years ago.

In a similar complaint, Graphic designer Mark Stoneham, 48, and his spouse Elize were forced to protest ‘excessive’ hikes for two years in a row.

“Car insurance put up my bill by 48 percent,” Mark complained.

Change in Premiums

Admiral had been the couple’s car insurance provider for a decade, so they thought there was no problem investing trust in the company. In 2017, however, the car insurance escalated their premium by 48% which led to a hike from £358 to £530. He was yet to make a claim as at then.

When he called Admiral, they agreed to reduce it to £415, and all seemed to be well. The stunner in 2018 was when his premium was renewed this year and hiked to £516.

Stoneham sought to know the premium range in the market and realized cheaper cover being offered by not less than 15 other providers. AA had the lowest annual quote put at £305.

He entered into negotiations with Admiral again, and the premium was reduced to £449 – an amount which was £100 higher than what he would have paid as a new customer under another provider.  He eventually switched to LV which saved him £200 after he paid £324 a year. In his remarks, he described the hikes as ridiculous.

Chief Executive Officer of Citizens Advice Gillian Guy said: “It beggars belief that companies in regulated markets can get away with routinely punishing their customers simply for being loyal.

“As a result of this super complaint, the CMA should come up with concrete measures to end this systematic scam.”

In response, CMA senior director Daniel Gordon noted:

“We will now carefully consider the concerns raised by Citizens Advice and any further evidence on the issue. Our response will set out the CMA’s views on this important issue, and any steps we think are needed to make sure businesses don’t take unfair advantages of their long-standing customers.”

As the discourse became more robust, Eric Leenders from banking lobby group UK Finance said the group and its members would consider the issues raised by Citizens Advice and respond in due course.

“The industry has already implemented a number of measures to further improve competition in the mortgages and savings market, including communicating more clearly with savers about the rate they receive and helping longstanding mortgage borrowers’ switch to a better deal. We would always encourage customers to shop around and find a deal that best suits their needs and will continue working with the regulators to make this as easy as possible, including through standard terms and price comparison tool.”

Association of British Insurers’ director general Huw Evans added his voice to the irregularities:

“In any market where there are a regular switching and fierce competition for new business, good deals are available to those who shop around, but this does not mean long-standing customers can lose out.

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.


Jimmy@moneycheck.com
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