The insurance auto-renewal trick

A reader pays $1,680 a year for his car insurance. Same insurer for seven years. Clean driving record.

Last month he got a quote from a comparison site for identical coverage. $1,080. Same company, same car, same driver.

The $600 difference has a name. It’s called loyalty penalty. Insurance companies charge existing customers more than new customers, because they bet you won’t check. And the bet usually works.

In 2022, the UK banned this practice after the Financial Conduct Authority found it was costing customers £1.2 billion a year. Australia, the US, and most other countries haven’t banned it. Which means it still happens to you.

Here’s the mechanic. Every year, your policy auto-renews. The renewal price goes up slightly. Inflation, claim trends, risk adjustments. That’s the story. But behind the scenes, loyalty models charge long-tenure customers more because they’re statistically less likely to switch.

New customer acquisition costs more than retention, but loyalty penalty pricing generates more profit per customer than acquisition does.

Rule
Insurance is not loyalty. It’s a contract. Shop it every renewal, every single time.

Action for this week
Get three quotes on your car, home, or health insurance. One from a comparison site. One from your current insurer “as a new customer”. One from a broker. The gap will shock you.

Next week
When to cancel a subscription vs pause it.

Know someone who’s had the same insurance forever? Forward this.

P.S. The comparison site result is the same insurance product at a different price. Same company. Same policy. Same coverage. Different price, because you’re a new face.