Consumer loyalty 'rip off' faces probe


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Household insurance is one area where loyal customers may be missing out

The accusation that loyal customers are being “ripped off” for key services is to be probed by the competition body.

It follows a super-complaint from Citizens Advice, which says customers who stick with their supplier are losing a total of £4.1bn a year on mobile, broadband, savings, household insurance and mortgage deals.

That amounts to an average of £877 per person, that charity said.

It added that elderly and vulnerable people are disproportionately affected.

The Competition and Markets Authority (CMA) said it would now “carefully consider the concerns” that Citizens Advice had raised.

‘Systematic scam’

Gillian Guy, chief executive of Citizens Advice, said: “It’s completely unacceptable that consumers are still being ripped off for being loyal to companies they rely on every single day.

“Regulators and government have recognised the loyalty penalty as a problem for a long time – yet the lack of any meaningful progress makes this super-complaint inevitable.

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

The charity said that while the new price cap in the energy market would cut bills for loyal customers by £75 on average, its analysis found “excessive prices for loyal customers can be just as high – if not more so – in other markets”.

Citizens Advice said problems had been detected in five particular areas:

  • savings accounts
  • mortgages
  • household insurance
  • mobile phone contracts
  • broadband contracts

It said it knew of a couple in their nineties who were paying £1,000 a year too much for their home insurance.

They had been with the same company for six years.

Banking industry group UK Finance said it would “carefully consider the issues raised by Citizens Advice”.

Eric Leenders, managing director of personal finance for the body said: “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 rates 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 tools.”

Earlier this week, the telecoms regulator Ofcom announced action to stop loyal customers paying too much for their mobile phone contracts.

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The insurance industry says three out of four people do shop around

The insurance industry has also promised to make changes, after admitting that long-standing customers sometimes pay more than new ones.

It wants all insurance firms to look at customers who have been with them for more than five years.

“In a competitive free market, where three out of four people shop around, there is no easy fix available, and these measures will take time to bed in,” said Huw Evans, director general of the Association of British Insurers.

“But we believe that these industry commitments are a positive step in tackling excessive premium differences that can unfairly penalise long-standing customers.”

Next steps

This is only the fourth super-complaint that Citizens Advice has made since 2002, when the legislation came in.

The CMA now has 90 days to come up with ideas for dealing with the issue.

Possible outcomes could involve new laws, enforcement by regulators, or a full market investigation.

“Our response will set out the CMA’s views on this important issue and any next steps we think are needed to make sure businesses don’t take unfair advantage of their long-standing customers,” said Daniel Gordon, senior director at the CMA.

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