A “misperception that loyalty is rewarded” in the insurance industry is one of the reasons behind people being slow to switch providers, a study by the Central Bank has found.
The research, which focused on engagement and switching patterns among car and home insurance consumers, found that a quarter of consumers in the State mistakenly believed that loyalty to an existing provider would be financially rewarded.
These consumers are significantly less likely to switch, it said.
The finding highlighted “the universal importance of providing clear and accurate information to the public domain to enable consumers to make the right choices for themselves”, it said.
The study, which drew on a survey of 5,500 insurance policyholders in the Republic, found that 80 per cent of car and home insurance consumers will engage with their provider when their policy comes up for renewal, while about one in four will switch provider.
Consumers are more likely to engage with and/or switch provider if, on renewing their policy, the price increases, it said.
Behavioural characteristics were found to play a significant role, with certain consumers more likely to stick with the status quo, “even when doing so may not be financially beneficial”.
“Time-poor consumers” were also less likely to switch.
The research also examined the use of digital information and channels in purchasing insurance, noting that about 55 per cent of consumers here used the internet when buying products. However, one in five policyholders reported difficulties in using the internet to search for and purchase financial purchases, including insurance.
“These consumers tend to be older, lower income, and less educated,” it said, noting that policyholders who are less comfortable with digital channels were also more likely to exhibit status quo bias.
The research “highlights the role of consumer psychology in creating obstacles to engagement and switching”, the Central Bank said.
“In order to design effective disclosures and consumer protection policies, it is important to take consumer psychology and insights from behavioural economics into account,” it added.
“The Central Bank expects firms to take account of such factors as part of their efforts to support consumers in making fully informed decisions,” it said.
Responding to the latest research, Brokers Ireland said while it is positive that eight out of ten engage with their provider on car and home insurance at renewal, it is worrying that one in four believes that loyalty to an existing provider will be rewarded.
Diarmuid Kelly, chief executive of Brokers Ireland said: “We know from previous research by the Central Bank that renewing customers were paying significantly more than the expected cost of the policy, while new business customers were paying marginally less.
“However, it was disappointing that the CBI when making changes this year preventing insurance companies charging consumers more each year they stayed with the same insurer, unlike the Financial Conduct Authority in the UK, stopped short of recommending a complete ban on differential or dual pricing,” he said.
The regulator this year banned the practice whereby home and motor insurance companies impose so-called loyalty penalties on long-standing customers, also known as price walking.