Your Money

Loyalty tax: proof that loyalty does not pay

- June 7, 2024 3 MIN READ
Loyalty tax

Enough is enough. Insurance companies and banks must stop hiking premiums and prices for loyal customers, while offering better discounts for new customers.

Last week, Insurance Australia Group (IAG) was hit with a class action which is alleging they’ve used computer algorithms to inflate premiums for existing loyal customers. They target customers who will most likely automatically renew a policy and inflate premiums.

Similar practices are running rampant throughout the banking and insurance industries. It’s no secret that loyal customers are often the ones stung with higher fees and frankly, it needs to stop.

Australians put their trust in big brands and are often shocked when they use comparison services like Compare the Market (where I am Economic Director) and discover just how much we can help them save by switching to a different insurance provider. In some cases, Australians aren’t even aware that they’ve been paying a higher premium by sticking with the same brand or plan.

By switching to a better deal the savings can often be hundreds of dollars over a year, which can make a significant difference as we continue to battle the cost-of-living crisis.

Put your bills under the microscope

According to ABS data, insurance costs have skyrocketed a whopping 16.4 per cent in the 12 months before March alone. That’s over four times the inflation rate and the biggest increase since 2001.

While it’s great to see the issue finally getting some attention through the IAG class action, urgent action is needed to make up for slow progress over the past couple of years. At the end of the day, the message is the same as it has always has been: compare your bills and insurance renewals as soon as they come through. It doesn’t matter where you go to compare, but really put your bills under the microscope.

There’s a significant difference reported between what new customers and old customers pay and right now not enough is being done to help those people onto better deals.

Insurance companies and banks need to do more

While the onus is on Australians to search for a better deal, insurance companies and banks need to do more.

A big issue is a resistance from some brands to allow their products to be compared transparently against others on the market. It’s certainly a worry and I regularly advocate for all insurance companies and banks to allow for easy comparison.

Complacency kills your hip pocket and people need to be more sceptical about their bills and make sure they’re not paying more than they need to. I’d urge anyone who’s been with the same bank, insurer or telco for the past few years to be a bit inquisitive, do some research, and see if you’re actually getting a good deal.

Always check for a better deal elsewhere

Those who have been following me for a while know my wife Libby is the world’s best when it comes to household finances — she has managed ours ever since we were married.

Her golden rule is that she never renews an insurance policy or pays an energy bill without checking to see if there is a better deal elsewhere. Comparison websites are her go-to.

The next time you receive an insurance renewal notice, grab your laptop, run a comparison and see how your bill stacks up with other offers.

Remember, the worst thing that can happen when you compare is finding out that you’re already on a pretty good offer. The best thing could be saving hundreds, if not thousands of dollars.

We are a society that values loyalty. We look for loyal friends, celebrate big wedding anniversaries, and love our devoted dogs.

But that same mindset could be hurting our hip pockets. When it comes to big brands, loyalty doesn’t pay. Force them into comparison, show them you won’t pay more and maybe we’ll start to see better prices as a result.

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