Is your loyalty to insurers costing you thousands?

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There’s nothing like a pandemic to spike a renewed interest in life insurance. And there’s nothing like a warning from an eminent Australian to beware the cost of your assorted insurances to spark a fresh wave of queries.

Professor Allan Fels, former head of the Australian Competition and Consumer Commission (ACCC) and now NSW Emergency Services Levy Monitor has, in recent years, dedicated part of his time to lifting the lid on insurance price gouging. Unfortunately for us all, that is about to come to an end. His commission – to track insurance costs across regions of New South Wales – ends this month. But the legacy of his work is profound, putting a dollar figure on how much extras premiums are costing lazy or ignorant consumers. 

In NSW, his team compared what 13 insurers charged across 11 locations on a monthly basis and then analysed the data.

His brief was to make sure insurance companies did not charge unreasonably high prices or mislead policy holders.

However, his research found that on average, customers renewing their insurance policy without shopping around paid 27 per cent more than new customers. He labelled this practice the ‘loyalty tax’.

“Our most recent data indicates the gap has risen to 34 per cent,” he said. “This translates to hundreds of dollars for the average home and contents insurance policy.

“In Britain, regulators have calculated that customers are, by their fifth renewal, paying about 70 per cent more than a new customer. The Competition and Markets Authority estimates the total cost of loyalty taxes in five British markets – mortgage, savings, home insurance, mobile phone contracts and broadband – to be about £4 billion (about $7 billion) a year.

“Translating this British estimate to the equivalent sectors in Australia (taking into account differences in population and GDP), the cost to consumers could be as high as $3.6 billion, or at least $140 a year per person. This estimate does not include the energy sector, where evidence suggests the practice of charging longstanding customers more is rife.”

Despite his work, Prof. Fels said consumer awareness of the loyalty tax appeared to be low.

The Emergency Services Legacy Monitor’s final survey, obtained by The Sydney Morning Herald and The Age, proved the economic sense in shopping around for home insurance. It reported:

  • In Hornsby, NSW, for example, policyholders who switch from the most expensive premium to the average premium could save $470 a year, while those who switch from the highest to the lowest price quoted would save about $1200 a year.
  • On average, the most expensive home insurance policy at each location tested is more than twice the price of the cheapest policy. In Hinton, NSW, the most expensive premium is more than six times the price of the cheapest available.
  • CommInsure, QBE, NRMA and OnePath were consistently the most expensive insurers in the 11 postcodes tested in March, while Youi, Westpac, Woolies and Allianz were consistently the cheapest.

Loyalty is not rewarded in the insurance sector, Prof. Fels said.

“Discounting to win new customers is not fair if the costs of that discount are not passed on to longstanding customers. It discriminates against people who do not or cannot easily switch to another supplier. Vulnerable consumers – elderly consumers, those on low incomes, low education, or those with a disability – are disproportionately affected.”

Prof. Fels said many consumers had likely been unaware they were paying more each year for their premiums until he was able to introduce a requirement that insurers display last year’s premium on the renewal notices to policyholders. That is now a nationwide practice and the information makes it more likely consumers will query any annual increase.

“If you are not happy with the increase, or the explanation for it, you should shop around and reassess your options,” said Prof. Fels.

“You will need to get a couple of quotes. Our research shows major variations in insurance quotes for identical homes with identical risks. Every quarter we seek quotes for a specified home with identical risk, and the highest quotes are up to 2.7 times that of the cheapest.”

Prof. Fels said that despite the work of his monitoring team, more had to be done. While there were lots of brands to choose from, the market was highly concentrated and not particularly competitive. Like the banking industry, there were just four major players, he said.

The larger problem, however, was on the demand side. “Consumers are generally not well informed. The complexity of products and the large amount of fine print in contracts makes it hard for customers to tell if they are getting a fair deal. Once they’ve made a choice, most will not think about switching, because it’s time-consuming, costly and inconvenient.”

In other insurance news, new research from MetLife found one in four Australians, or 28 per cent, had investigated life insurance since the outbreak of COVID-19.

The report said consumers were also actively thinking about their superannuation, with two-thirds (66 per cent) still wanting to hear from their fund about their investments and what they could do to protect their super.

MetLife Australia group insurance chief James Carey said the spike in interest was understandable given the ongoing stress caused by COVID-19.

“Our research found that half of Australians claim COVID-19 has had a negative impact on their personal finances,” Mr Carey said.

“Although the number of people reporting a ‘very negative’ impact has eased since March, there is still a lot of uncertainty when it comes to job security and financial wellbeing.”

He said that while it was encouraging to see so many Australians take active steps to secure their financial situation, the increase in inquiries suggested many consumers did not fully understand what was and wasn’t covered by different insurance products.

This was an important opportunity for financial providers to educate consumers to ensure they had the right protection for their situation, he said.

Do you reassess your assorted insurance premiums each year? Do you know if you are being penalised for being a loyal customer?

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Written by Janelle Ward


Total Comments: 10
  1. 0

    We always compare insurance costs each year and when there is a marked difference we contact our insurer to see if the reduced premium can be matched. We also check what is covered as the comparisons are not always like for like. We got caught some years back by taking a lower quote and finding that our storm damaged fence was not covered whereas the previous insurer did cover fence damage. Comparison sites are not always independent and do not compare every company but just a few insurers that pay to be listed and/or pay a commission.

  2. 0

    In answer to your 2 questions –
    1. Do you reassess your assorted insurance premiums each year?
    2. Do you know if you are being penalised for being a loyal customer?
    Answer 1 – YES
    Answer 2 – ABSOLUTELY!
    Insurance companies prey on people to automatically renew their insurances every renewal, and this is a complete con. If changing to another company, yes, they will offer a low premium to lure you in, then ramp it up and up. Luckily now that I am retired, I have the time, but I research every insurance renewal, and do match up terms and conditions. It is time consuming, and a real pain, particularly when so many on-line quotes are NOT online quotes. So many times, go through all the questions – and get to the last page, where they say “enter your phone number and/or email address and we will get back to you with the best premium”. I refuse to do this as that is NOT providing an on-line quote. Some sites do give you an automatic quote after you enter the details – but I have learnt to ALWAYS enter a totally made up phone number and made up email address. The quote number suffices.
    As for loyalty…HAH!! One of the worst is my states Auto Club. Their renewals are always considerably increased, and they will not budge on reducing. I saw this personally a few years ago. I regularly visited my 85yo aunt in her home nearby me. Soon after my uncle died, I went to visit her and found her crying. Turns out the reality of being reduced to the single pension, does not reflect in bills, and she had just got her Home/Contents Insurance. I nearly died when I saw the outrageous price! But when she said ‘but I’ve been with them for over 25 years’, I knew she was being ripped off. And they were doing it deliberately.
    I rang the company (state Road Club) – and they would not budge. I ended up changing to another company, more cover, and nearly half her previous premium. I wrote a formal letter of complaint, and got back a ludicrous reply saying they had to take into account events like cyclones (don’t live anywhere near them), and other catastrophes. So if there is a cyclone in Cairns, it affects premiums in Melbourne?
    I lived through the 1983 Victorian bushfires and after that, would never buy a home near treed areas. But it seems my premium would be the same, regardless if I lived in the middle of a forest. So much for personal risk.
    Insurances – a loathed necessity, the same as Health Insurance.

    • 0

      Yes, it’s been going on for years, lure you in and the renewal increases a lot so for a long time I’ve been doing the multi quote thing (except those call backs).

      The difference is astounding with some quotes for my car being literally double compared to others.

  3. 0

    Every time a renewal arrives I also do a comparison,n but sadly I’m yet to get a better deal than with NRMA. The latest was my comprehensive policy which came in at $471 and the cheapest comparison I got was $543! Add into this that if you start removing insurance policies from one company you also lose the multi policy discount which also adds up. However, I dutifully do the comparison just the same.

  4. 0

    Every time a renewal arrives I also do a comparison,n but sadly I’m yet to get a better deal than with NRMA. The latest was my comprehensive policy which came in at $471 and the cheapest comparison I got was $543! Add into this that if you start removing insurance policies from one company you also lose the multi policy discount which also adds up. However, I dutifully do the comparison just the same.

  5. 0

    Like Horace I compare the premiums on my hose and contents insurance and my car insurance each year at renewal time. I also take the time to assess exactly what I am insured against. Generally I found that the budget policies had too many exclusions to the cover that I was accepting a lot of the risk myself. For instance my car insurer covers me conditions as if it was our own car. Also our policy does not have exclusions if we drive on unsealed roads like most hire car policies include. I assessed I would be better off keeping my existing policies rather than saving a couple of hundred dollars on a cheaper but less coverage policy

    • 0

      I lost a line, when editing my comments. Should read:
      For instance my car insurer covers my wife and myself (policy is in joint names) when we use a hire car with the same conditions as if it was our own car.
      Damn Damn, one day I will get the hang of using computers.

  6. 0

    Definitely being penalised for being a loyal customer with RAC WA. Car insurance increases yearly even though no claims are made. Another rip-off!

  7. 0

    It’s called the lazy tax for a reason. If you don’t compare every policy you have at renewal you are going to pay more.

    But premiums paid do not equal your personal risk. There us no bucket of money with your name on it ready for when you need to claim. Insurance us spreading the cost among all policy holders, so yes a cyclone in Cairns will affect costs in Melbourne, or bush fires in a fire prone area will affect costs in Uluru. Or your health premium supports someone else requiring tens of thousands of dollars worth of medical treatment even if you don’t claim yourself. That is what insurance does.

    It is up to us to put in the hard yards and check costs and coverage ourselves. You simply can’t expect to be spoon-fed by someone else. It’s your responsibility, no one else.



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