Resources
The insurance loyalty tax - are you paying too much?
If you've been with the same insurer for years and never questioned your premium, there's a good chance you're paying more than someone who just signed up for the same policies and coverage.
It's called the "loyalty tax" - and it's one of the most common ways NZ consumers end up overpaying for their car insurance, house insurance and contents insurance.
What is the insurance loyalty tax?
The loyalty tax isn't an actual tax - it's a term used to describe the price difference between what long-term customers pay and what new customers pay for equivalent insurance policies. It affects every type of cover, and the pattern is the same.
Over time, the costs on your policies creep up through small annual increases that go beyond inflation or changes in risk. Meanwhile, insurers often offer competitive introductory pricing to attract new customers.
The result? People who renew without shopping around can end up paying noticeably more than someone who just switched to the same insurer for the same level of coverage.
Why does it happen?
Insurers know most people don't shop around at renewal time. Once you've set up your car or home cover, it's easy to let it auto-renew year after year. Insurers rely on this inertia.
At the same time, insurers compete aggressively for new customers. They may offer lower introductory premiums, cashback deals or waived excesses to win your business - costs that are effectively subsidised by existing customers who don't switch. Natural disasters, like the events that hit Wellington and Christchurch, also drive industry-wide premium increases - but these rises can mask the loyalty tax sitting underneath.
It's not unique to New Zealand, but Kiwis feel it particularly hard. The loyalty tax has been documented in insurance markets around the world, and regulators in several countries have taken steps to address it.
How to check if your insurance costs are too high
It's not always obvious that you're paying a loyalty tax. Here are some practical ways to find out.
Compare your renewal to last year
Look at your renewal notice and compare the premium to what you paid last year. If the costs have gone up and your circumstances haven't changed, ask your insurer to explain why.
Get a new-customer quote from your own insurer
Try getting a quote from the same insurer as a new customer (using the same details). If the new-customer price is lower than your renewal for the same coverage, you're likely paying a loyalty tax.
Get quotes from other insurers or use a comparison tool
Compare your renewal premium to quotes from other providers. Make sure you're comparing like for like - the same coverage levels, excess and sum insured. A comparison tool or broker can help you see what else is out there.
Ask a broker to review your policies
A broker can review all your current policies and tell you whether you're paying a fair price for the coverage you're getting.
What you can do about it
The loyalty tax is entirely avoidable. Here are your options.
Shop around at every renewal
The single most effective thing you can do is compare your renewal costs with quotes from other providers. Even if you don't switch, having a competing quote gives you leverage to negotiate a better price on your existing policies.
Call and negotiate
If your premiums have gone up, call your insurer and ask for a better price. Many insurers have retention teams that can offer discounts to people who are thinking about leaving. It doesn't always work, but it costs nothing to ask.
Don't auto-renew without checking
Set a calendar reminder a few weeks before your renewal date. This gives you time to review your policies, check the costs, and shop around if needed. Letting your car or home insurance auto-renew is exactly what insurers count on.
Use a broker
A broker reviews your coverage and pricing every year as part of their service. They'll let you know if you're overpaying and find better options if they exist. It takes the hassle out of shopping around. Learn more about how brokers work.
A word of caution - price isn't everything
While it's important not to overpay, switching policies purely on price can leave you worse off. A cheaper car insurance policy might have a higher excess, and a lower-cost contents insurance policy might not cover your belongings properly if disasters like flooding or earthquakes strike.
Always compare the actual coverage, not just the premium. Check the sum insured, excess amounts, exclusions, and any special conditions. The cheapest policy is rarely the best value if it doesn't pay out when you need it - especially for your home, where the real cost of underinsurance only becomes clear after a disaster.
This is one of the key advantages of using a broker - they look at the full picture, not just the price tag.
Find out if your insurance costs are too high
Get a free, no-obligation quote from Kapi Insurance. We'll review what you're currently paying and let you know if there's a better deal out there.