How Do Insurance Companies Treat Loyal Customers?


Who Benefits From Customer Loyalty?

Back in December 2015 Annette Franz in her post titled So, What Exactly is Customer Loyalty? made the following statement:

I had a situation recently that caused me to call on a provider to whom I’ve paid thousands and thousands of dollars by way of monthly premiums for the last 20+ years. I’ve never filed a claim, but I did six weeks ago. It’s not been a good customer experience since that day.

Annette went on to question the concept of Customer Loyalty. Does it refer to the customer being loyal to the organisation? Or to the company being loyal to the customer?

This was my response to her question:

Hello Annette, I have been and continue to be clear that customer loyalty is a marketing concept. As such it is consists of a bunch of tools and techniques for getting the customer to stick with the organisation as long as the customer is generating handsome revenues and profits for the organisation. It is certainly not the organisation being loyal to the customer. Put differently, customer loyalty is a company centric concept.

I assert that as a customer you either have to be naive or stupid to think the organisation is loyal to you. Take insurance, if you are loyal customer you will be worse off. How so? When it comes to renewal time you will pay higher premiums. Why? You will accept the renewal premium without shopping around.

What Is The Cost of Customer Loyalty When It Comes To Insurance?

Want an example of how insurance companies penalise loyal customers? Thanks to the Guardian newspaper, I have an example for you. Allow me to share some passages from How Halifax penalises its insurance customers for their loyalty (bolding mine):

How much should the buildings insurance be on a £250,000 terrace house in Redcar, north-east England? It probably wouldn’t be difficult to find quotes for less than £200.

Mrs Laurie (I’ve changed her name) had always been good with managing her money. She dutifully paid the home insurance premiums demanded by Halifax every year, even though it kept going up. But when it hit £450 she could no longer afford to pay it.

What was Halifax’s response? Did it review the premium and reduce it to reflect the prices that other people were paying in the market? Oh no. What Halifax appears to have done is reopen her former mortgage account with the bank, then charge the insurance premiums to that account. Halifax then continued jacking up the price every year, to a vastly inflated £800 at the time of her death – a figure her son says is around six times the going rate. The final insult was that Halifax charged interest on the unpaid premiums, making ever more profit out of its elderly, loyal and vulnerable customer.

When Does It Make Sense To Stick With Your Insurance Company?

If you are a customer then here is my advice: never ever take the renewal quote offered to you by your insurance company. Why? Because from an insurance company perspective, the most logical course of action is to offer you an inflated premium. Why? To take financial advantage of those folks who are either ignorant (of how companies work) or lazy (cannot be bothered to shop around). When you have millions of customers, even a mere 20% of customers renewing automatically can generate £millions in extra revenues and profits.

Having said the above, I wish to point out that the insurance premium should not be the only factor that you consider. Why? Because one takes out insurance just in case one needs to make a claim. Which implies that you should, at a minimum, consider other factors including:

  1. Coverage – what is and is not covered?
  2. Time and effort involved in making a claim;
  3. Claims track record – how good is the insurer at dealing with and paying out on legitimate claims?

For example, for the last two years running I chose to stick with my home insurer even though I get a cheaper premium from other insurers. Why? Because for the first time (2 years ago) in 20+ years I had to make a claim. The process of making the claim showed up as effortless. The claim was dealt with quickly by the insurer and in full. And, when I was dealing with the loss adjuster he told me that my insurer is among the best insurers when it comes to paying out legitimate claims.

If you are regular subscriber to this blog then I thank you. And take this opportunity to wish you the very best for this year.

This blog post has been re-published by kind permission of Maz Iqbal – View the original post

Published On: 4th Jan 2016 - Last modified: 6th Feb 2019
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