Cedric Stephens | The loyalty trap
ADVISORY COLUMN: RISKS & INSURANCE
QUESTION: My car and house are insured with the same company. I have been with them for over 10 years. Because of this, I am now getting five discounts on my motor premium, plus a 10 per cent discount off the house premium. I was recently told that because of the five discounts, my motor premium will fall below the company’s minimum premium and, therefore, will have to be increased. This sounds like a poor excuse to get more money from me. What do you think? Do I have any options?
− W.M., Kingston 8
RISKS & INSURANCE: Consumers always have options. We live in a country that operates a free-market economy. The availability and sale of goods and services, like insurance, is dictated by supply and demand.
There are nine companies licensed to sell motor insurance. Buyers can conduct business with any one of them. They can cancel their contracts whenever they like. Consumers’ navel-strings are not buried on the grounds of an insurer’s premises in New Kingston or in downtown Kingston.
The Fair Trading Commission studied the local motor insurance market and concluded in a report dated December 2015 that “despite the reduction in market participants and the seemingly high regulatory and financial barriers, the market appears to be more competitive”. I agree. Although nearly five years have passed since the study was published, I do not believe that there is less competition between insurers now.
On a hunch, I decided to type loyalty and auto insurance into my Internet browser. Like you, I suspected that your discounts were meant to handcuff you to your insurer. Much to my great surprise, the browser compiled a list of 7.3 million items.
Prior to this research, I was unaware that motor insurers around the world put so much effort into building loyalty among their customers. The number of items is a proxy for the importance of loyalty.
Could my subjective assessment be balanced by the opinions of disinterested professionals? InsuranceHotline.com, in a 2012 article, ‘Loyalty and Your Insurance Company: Does Sticking Around Mean Better Rates?’, says yes.
“One of the ways insurance companies try to keep customers around is by offering perks to loyal customers. Loyalty discounts are usually the main perk, but others may include reduced deductibles. Often, insurance customers believe that by looking for a new insurance policy, they will wind up paying more since they’ll have to forfeit the loyalty discounts and perks they have earned. While it is true that going to a new insurance company means losing loyalty perks, it doesn’t mean you’ll pay more for car insurance,” the article says.
Is this an example of confirmation bias? You decide.
On the local scene, Marathon Insurance Brokers, through an online portal, MIBInsure.com, provides consumers with the ability to comparison-shop for motor insurance. This is a ticket to avoid playing the loyalty game. Marathon boasts that it can “slash motor premiums by 60 per cent or more”.
Also, most local auto insurers allow consumers to obtain motor insurance quotations online 24/7 from the privacy of their homes. It should, therefore, be easy for you to decide whether it is in your economic interest to be a player in the loyalty game.
Here are a few more insights into avoiding the loyalty game, courtesy of the folks of InsuranceHotline.com.
• While you will lose your loyalty discount if you decide to change insurance companies, there is no risk whatsoever to taking some time to shop around and get quotes that come without obligation. You can compare rates whenever you like. This will give you a better idea of how your current rate stacks up in comparison with what is out there.
• You don’t have to switch unless you are sure it is the right move, and until you actually cancel, your loyalty discount is safe. The best way to comparison-shop is to find out what future loyalty discounts await you if you stay and how much you can expect to pay at that time.
• You will also need to know how long you have to stay with the company before the discount applies. Add up how much you will pay over that time period, and compare it to the quotes you have received. Taking a look at the long-range difference in premiums can make it much clearer how much you really stand to save with loyalty discounts versus a rate that might be lower right now.
• Remember that although you might be giving up the loyalty discount you already have, if the rate somewhere else is lower, you will be saving more money down the road when loyalty discounts kick in on the new policy.
• So, if the rate is lower already, it stands to get even lower in the future. Ask what sort of loyalty discounts you can expect to get from a new insurance company in the future. This should be part of your decision process. Saving money today is a great place to start, but knowing that you will save even more in the future can make the choice easier.
• The future savings on your current policy are definitely something to consider, and you won’t want to give up discounts you have already earned lightly. With insurance rates highly competitive and so many companies wanting your business – especially if you are a good driver who has earned many discounts, including loyalty – it only makes sense to shop around occasionally and see what is available to you.
• Loyalty does matter when it comes to great rates, but don’t let the idea of being loyal to a company blind you to the possibility of saving a lot more elsewhere.
• Shopping around regularly doesn’t affect any discounts you currently have, and it lets you keep an eye on the rates that are out there. You won’t know how much you could be saving if you don’t get quotes, so make it a regular habit to check up on insurance rates. If nothing else, you can rest easy knowing you are getting the best deal.
In these uncertain economic times, a dollar saved is a dollar earned.
Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: firstname.lastname@example.org