Home insurance companies make 100% of their profits from the loyalty penalty, reveals Citizens Advice

Citizens Advice has found that home insurance companies in the UK make all of their profits - that is over £1bn a year - from loyal consumers holding policies for 6 years or more.

The research also reveals loyal customers are paying an average annual premium of £325 for their 6th year of insurance - almost double that of new customers (£172).

In the last year the data was available (2016) Citizens Advice found 9.3m policies where customers  had been loyal to their provider for six years or more. But there were only 6.9m policies where customers switched after a year.

Citizens Advice is particularly concerned that home insurance companies make over half (51%) of their profits from people defined by the market’s regulator as potentially vulnerable.

Its research shows people who are vulnerable due to issues such as poor health are likely to be paying the most for their home insurance. Citizens Advice estimates that 3.75m policies have been held for 11 years or more and over 7 in 10 (71%) of these customers are potentially vulnerable.  

The charity is calling for the FCA to identify concrete solutions to the loyalty penalty as part of its insurance market study.

Diane, a 76 year old pensioner from Kent who suffers from severe arthritis, said:

“I had my home insurance with the same provider for over 10 years. I see the increase in price every year but for me at my age, I find it difficult to shop around. It's just easier to stick with what I know.

“At the end of last year I received my renewal letter. They wanted to increase my premium from £1500 to £3500 a year. I was shocked, really confused and also sad that they expected me to pay so much.

“I had no choice but to find a cheaper provider. As I don’t have access to the internet I went through the Yellow Pages and called quite a few insurance providers and found a far cheaper deal of £958 per year.

“I feel I have been taken advantage of, they are just trying to make as money as they can. I don’t understand how my premium has gone up so much in the last couple of years.

“For people of my age to try and shop around is difficult but as my renewals come in I will have to try as being a loyal customer does not pay.”

Gillian Guy, Chief Executive of Citizens Advice, said:

“It is appalling that home insurance companies are making all their profit from exploiting loyal customers.

“What makes this worse is that vulnerable people are likely to be the most loyal to their provider.

“Since we submitted our super-complaint about the loyalty penalty, some companies have rightly promised to treat their customers better. Yet many more are still choosing to make their profits off their most loyal and vulnerable consumers.

“The CMA’s response to our super-complaint was clear that regulators must come up with a plan to tackle the loyalty penalty by June. The clock is ticking, the FCA must act quickly to stop this systematic scam.”



Citizens Advice submitted a super-complaint on the loyalty penalty, in the mobile, broadband, home insurance, mortgages and savings markets, to the CMA in September 2018 calling for the regulator to consider how the problem can be fixed. The CMA’s response to our super-complaint in December said it agreed and had found damaging practices by firms, which exploit unsuspecting customers. The CMA said it wanted to see urgent action.

Research by Citizens Advice found that across 5 essential markets (mobile, broadband, home insurance, mortgages and savings):

  • British consumers lose £4.1 billion a year to the loyalty penalty (or £11 million a day).

  • 8 in 10 people are paying a significantly higher price, in at least one of the markets, for remaining with their existing supplier.

  • The loyalty penalty across the 5 markets is, on average, £877 per year - equal to 3% of the average household’s total annual expenditure.

  • The loyalty penalty for home insurance is £708m each year

This is the fourth super-complaint Citizens Advice has made since being given the power in 2002. Its complaint on payment protection insurance (PPI) in 2005 helped to generate a huge win for consumers, with at least £33.6 billion returned to customers in refunds and compensation so far.

For more information contact: Laura Albrey

Tel: 03000 231313

Out-of-hours contact number: 0845 099 0107

Notes to editors

  1. The super-complaint can be found here

  2. The CMA’s response to our super-complaint can be found here

  3. The Loyalty Penalty Cross Sector Report can be found here

  4. The terms of reference for the FCA’s market study into insurance can be found here

  5. Profit margin estimates and number of households are taken from data included in the FCA’s ‘Pricing practices in the retail general insurance sector: Household insurance, published in October 2018. This data was collected from home insurance companies in 2016. Data was collected from a broadly representative sample of firms, representing 40% of the market. Citizens Advice’s figures have been scaled up to the whole market.

  6. Estimates of average policy costs are taken from the Association of British Insurers’ figures for average policy costs in Q2 2016. These costs are then weighted by the proportion of people in the UK who hold combined home insurance, contents only and buildings only insurance, taken from the FCA’s Financial Lives Survey. We then apply the profit margin figures above for each renewal year to estimate actual costs paid by new and loyal customers. Data on vulnerability is also taken from the most recent FCA’s Financial Lives Survey.

  7. The FCA defines a vulnerable consumer as 'someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care'.

  8. Citizens Advice is made up of the national charity Citizens Advice; the network of independent local Citizens Advice charities across England and Wales; the Citizens Advice consumer service; and the Witness Service.

  9. Our network of charities offers impartial advice online, over the phone, and in person, for free.

  10. We helped 2.6 million people face to face, over the phone, by email and webchat in 2017-18. And we had 25 million visits to our website. For full service statistics see our monthly publication Advice trends.

  11. Citizens Advice service staff are supported by more than 22,000 trained volunteers, working at over 2,500 service outlets across England and Wales.

  12. You can get consumer advice from the Citizens Advice consumer service on 03454 04 05 06 or 03454 04 05 05 for Welsh language speakers.