Saga admits customers who didn’t shop around were paying ‘more and more’ 

One of Britain’s top insurers yesterday signalled the end of the loyalty rip-off.

In a move which sent shockwaves through the stock market, Saga admitted customers who do not shop around were paying ‘more and more’ each year.

The over-50s specialist said it would now offer policies with fixed prices for three years.

Most insurers lure new customers with annual deals that initially offer low premiums. These are then bumped up when the time comes to renew – a practice which the Mail has long campaigned against.

Saga’s announcement saw its shares crash by 37 per cent to wipe £444million off the value of the company. 

In a sign of how much money there is to be made through the stealth price hikes, Saga said the change would result in a £310million hit to its insurance business – and a steep fall in profits. 

However, other insurers are now widely expected to follow suit with similar schemes of their own.

Saga chief executive Lance Batchelor admitted that the most loyal customers who do not switch were being penalised so that his firm and others could fight for new custom on price comparison websites.

The insurance industry has been accused of preying on loyal customers by offering an ultra-cheap initial rate and then hiking prices sharply in later years [File photo]

Watchdogs have long complained that this penalises busy families and the elderly who may not have the time or ability to shop around, and so face higher bills when their policies renew automatically.

The scandal has been highlighted by the Daily Mail, which has campaigned for fairer pricing by insurers – and in other businesses such as mortgage lenders and broadband providers. 

From now on Saga’s main policies will run for three years. The first year will be more expensive but prices will not go up in subsequent years as they currently do.

The plan was welcomed by campaigners, but led to profit warnings and hit the company’s 180,000 small investors.

Mr Batchelor told BBC Radio 4’s Today programme: ‘It’s a painful day for shareholders but a good day for consumers.

In a sign of how much money there is to be made through the stealth price hikes, Saga said the change would result in a £310million hit to its insurance business – and a steep fall in profits [File photo]

‘The UK insurance industry has operated this deal-pricing mechanism whereby consumers have come in at knockdown discount prices and then paid more and more as the years have gone by. Talking to customers that’s not what they want, and we’re going to change it.’

The news sent Saga shares crashing by 37 per cent to a record low as the firm took a £310million hit for its change of direction and said its profits will be a third lower next year.

Saga, which has a million insurance customers, will still offer annual cover, but said in trials more than 60 per cent of opted for the new product.

The insurance industry has been accused of preying on loyal customers by offering an ultra-cheap initial rate and then hiking prices sharply in later years.

Citizens Advice found that a typical consumer who did not switch their home insurance for five years would see their annual premiums rise by £110. 

And someone who stays with the same car insurance provider for eight years will be paying £131 more than a new buyer, the Financial Conduct Authority found. 

The FCA is also investigating the general insurance market and could impose stiff restrictions on the industry.

Justin Modray, of consumer group Candid Money, said: ‘Insurance has been unfair to customers for many years, and it’s good there’s a lot more pressure on insurers to deal with this. I would like to think they will play a lot fairer in the future, although I’m sure they’ll try to do it without profits being hit.’

Growing anger at rip-off prices has seen a number of insurers change the way they do business. Last year Aviva introduced a pay-as-you-go product and pledged there would be no automatic annual price hikes.

Other major players such as Direct Line are thought to be watching developments closely. Despite the plunge in Saga’s share price, City analysts said it deserved credit for confronting its problems.

Russ Mould, of stockbroker AJ Bell, said: ‘It takes a brave person to recognise that the plan isn’t working and to put up their hand and admit they’ve failed.

‘To Saga’s credit, admitting and hopefully correcting its mistakes could make the management look stronger.’

nCar insurance premiums have fallen by an average £100 after a law was introduced to clamp down on false whiplash claims.

The law does not come into effect until April next year, yet it has led to a fall in the number of ‘ambulance chasers’, with the average premium down from £790 in December to £690 in February, Comparethemarket found.