Is it time to reward loyal customers?

Has the car insurance industry adopted the wrong approach to customer loyalty?

Some esteemed businessmen seem to think so. Terry Leahy, the chief executive who turned around Tesco and who is recognised as an outstanding businessman, wrote this on dual pricing in his book Management in Ten Words: “Many car insurers offer their best prices to customers whom they do not know, rather than the customer they already have and know. By rewarding disloyalty, and switching rewards from old customers to new ones, such companies descend into a dangerous spiral, losing loyal customers and chasing disloyal ones. The right approach to take is the opposite … The more you know your customers and how they behave, the more you can afford to invest in the most loyal.”

The counter-arguments are that other industries, such as mobile phone firms, also engage in dual pricing. Moreover, the expansion of price comparison sites means gaining market share is always a temptation. Market forces are so strong it is unlikely that dual pricing will end anytime soon.

Latest review

In the meantime, the industry awaits the results of the FCA’s latest thematic review on dual pricing. One of the main reasons behind the review, namely that customers who do not shop around for deals are disadvantaged, looks tenuous. In reality, many customers have brand loyalty, and others are not interested in looking for a better deal. Further, the industry has also improved its signposting to help the disadvantaged.

The FCA is more likely to find issues under another thematic review: the one into broker conflict of interests. The issue of contingent commissions could come under scrutiny and, here, the FCA’s findings will be most interesting.