Let's be very clear about what is happening here...
66% of customers buy car/home insurance through comparison sites which encourage price as the only or near only basis for comparison.
To be successful with new business, insurers have to write the year 1 policy at a loss/breakeven - "New customers only" pricing. Therefore, private motor insurance has mainly been written at a loss for the last 25 years,
With a 66% churn rate and most of the policy set up costs being in year 1, the overall costs for all policyholders across the market goes up.
The result is that policyholders pay the price in subsequent years - the "loyalty tax"
What would happen if insurers broke the vicious cycle and started to examine how to increase retention through a massive focus on behavioural insight, realtime analytics and decisioning, AI, proactive and even preemptive retention activity and "segment of one" personalisation?
I saw how the teleco industry adopted just this approach some years ago and the results were startling. Massively reduced churn, optimisation of customer retention for the best customers and a bottom line effect that could not be ignored in the P&L reports hitting the board room table.
Very soon a major insurer will adopt this in their mainstream operations and the rest will have to follow.
Perhaps then we can get away from this vicious circle of bad behaviour which destroys the industry's good name.
After reports last year of overcharging in the sector, the issue was once again thrust into the spotlight last night with a senior MP calling on the Business Secretary to address the issue – and Ofgem boss Dermot Nolan suggesting that home insurers are hitting customers with penalties for their loyalty, even more so than utility giants. In an article in The Sun, Nolan was quoted as telling MPs that “in the home insurance market the penalties for not switching are relatively and significantly more onerous than they would be for energy.” The comments come on the back of a campaign by the newspaper which called on the government to end what it has dubbed a “loyalty tax” on British families within the insurance sector .