Aviva promise to 'reward loyalty' with new insurance policy
AVIVA have revealed they're to launch a product later this year that will reward customer loyalty, after insurance companies were criticised in the press for hitting longstanding customers with unjustifiable premium rises.
The announcement came as CEO Mark Wilson spoke before the insurer's annual group meeting, vowing to fix the "broken" insurance market and deal with the "problem of steep price rises for customers when artificially low introductory discounts come to an end."
Details of the policy haven't yet been shared, but it's likely that it in order to encourage loyalty, it will have to offer the kind of savings a customer could enjoy by switching.
Yet for such a product to be successful for Aviva there needs to be industry wide coordination, since otherwise their rivals may steal even the most loyal customers away from them with more competitive introductory offers.
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And at the moment, introductory policies for home and car insurance are certainly more competitive than those given to customers who've been with an insurer for several years, not least because recent whiplash-fuelled rises and the discount rate cut from March have caused average premiums to increase steeply.
For example, insurance analysts Consumer Intelligence found that customers who've been with their home insurer for nine years or more are losing out on savings worth £127.
Similarly, customers who've been with their motor insurer for at least nine years are missing out on £116 of savings, while even those who've only been with their insurer for a year still have to pay £63 more than they would if they switched after 12 months.
It's because of such gaps between introductory and renewed premiums that Mark Wilson of Aviva spoke of the need to reform the insurance market, so that longer term customers aren't hit with increases that exploit their unwillingness on inability to switch.
He said that the "market is broken. I don't like it and neither do our customers," which was why Aviva are "developing a product to reward loyalty by offering our best prices to existing customers".
An industry-wide solution
However, it remains questionable as to the commercial feasibility of such a policy, which will give the same or a similar rate to customers regardless of how long they've been with the provider.
As Wilson acknowledged, the problem of steeply rising premiums "requires an industry-wide solution", while Consumer Intelligence affirmed much the same when they said, "the industry knows it has a problem it can only fix by moving together".
Yet it's not clear at this moment as to whether the industry will be moving with Aviva, who may soon find that they're one of the only providers offering the same rates to new and existing customers.
This is a risk because, in order to maintain profit margins, any policy that offers the same rates to incoming and renewed customers will probably have to have a higher than average price. And if it does, than it opens Aviva up to having their customers poached by other insurers wielding cheaper introductory offers.
Still, it's too early to say whether they'll be the only insurer to market themselves to loyal customers.
In fact, it's likely that they won't be the only insurer to do this, since Aviva are responding in large part to regulatory changes brought in by the Financial Conduct Authority (FCA), changes intended to make the notoriously confusing insurance market more transparent.
From April 1st, insurers must now include the price of old premiums on renewal letters they send to their customers, so that people will have the opportunity to check whether they're being asked to pay more and to act accordingly.
Aviva, like other insurers, are presumably worried that this will result in a switching free for all, with long term customers jumping ship and going to other insurers. As such, they'll be offering the newly hinted at product, which will hopefully prevent "loyal" customers from going elsewhere.
This, indeed, is to a large extent what the new product is about, and it's because of a desire to prevent too much switching that other insurers will probably come out with their own versions of Aviva's loyalty product.
Which is a good thing for the public, since it will result in competition for loyal, longer term customers, and potentially lower insurance premiums overall.