Survey reveals scale of loyalty penalty
A new survey has found that British consumers stuck in rolling contracts believe they overpay by an average of £576 annually. The research, conducted by comparison site Compare the Market, highlights the financial burden of the so-called loyalty penalty, where long-standing customers are charged more than new ones.
Widespread frustration among consumers
The survey of 2,000 UK adults revealed that nearly two-thirds (64%) of respondents feel they are paying more than necessary for services such as broadband, insurance, and mobile phone contracts. Among those who have been with the same provider for over a year, the average perceived overpayment is £48 per month, or £576 per year.
According to the study, 72% of those who have never switched providers regret not doing so, citing better deals elsewhere. The most common reason for not switching is the perceived hassle of changing contracts, mentioned by 38% of respondents.
Financial impact adds up
The loyalty penalty is particularly pronounced in the insurance sector, where customers who auto-renew often see significant price hikes. Compare the Market estimates that consumers could save up to £300 a year by switching home insurance and up to £200 on car insurance.
Peter Earl, head of energy at Compare the Market, said: “It’s alarming that so many people are stuck in contracts they feel are unfair, yet they don’t switch because they think it’s too much hassle. The reality is that loyalty rarely pays, and consumers can make substantial savings by shopping around.”
Regulatory attention grows
The issue has drawn scrutiny from regulators. The Financial Conduct Authority (FCA) has previously investigated the loyalty penalty in home and car insurance markets, leading to new rules requiring insurers to offer renewal prices more in line with those for new customers. However, the problem persists across other sectors.
The survey also found that younger consumers are more likely to switch providers, with 44% of 18-34-year-olds having changed a contract in the past year, compared to just 18% of those aged 55 and over.
