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Insurance loyalty tax
Are you paying too much for staying loyal?
Been with the same insurer for years? Never questioned what they charge you at renewal? There's a good chance you're paying more than someone who just signed up for the exact same cover.
People call it the "loyalty tax." It's one of the most common ways Kiwis end up overpaying for their car insurance, house insurance and contents insurance.
What is the insurance loyalty tax?
It's not a real tax. The term describes the gap between what long-term customers pay and what new customers pay for the same cover. It affects every type of policy, and the pattern looks the same every time.
Over the years, costs on your policies creep up through small annual increases that go well beyond inflation or any change in your risk. Meanwhile, insurers roll out competitive introductory pricing to attract new sign-ups.
The result? If you renew without shopping around, you can end up paying noticeably more than someone who just switched to that same insurer for the same level of coverage.
Why does it happen?
Insurers know most people don't shop around at renewal time. You set up your car or home cover once, let it auto-renew, and never look at it again. Insurers count on that.
At the same time, they compete hard for new customers. Lower introductory premiums, cashback deals, waived excesses. Those sweeteners cost money, and the cost gets subsidised by existing customers who don't switch. Natural disasters like the events that hit Wellington and Christchurch also push premiums up across the board, but those industry-wide rises can hide the loyalty tax sitting underneath.
This is not unique to New Zealand. But Kiwis feel it hard. Whether you're in Hamilton or Dunedin, the pattern is the same. Regulators in several countries have already taken steps to address it, and the conversation is growing here too.
How to check if your insurance costs are too high
You won't always spot it on the renewal letter. Here are some practical ways to find out whether you're paying a loyalty tax.
Compare your renewal to last year
Pull out your renewal notice. Compare the premium to what you paid twelve months ago. If the cost went up and nothing about your circumstances changed, call your insurer and ask them to explain the increase.
Get a new-customer quote from your own insurer
Go to your insurer's website and get a quote as if you were a brand new customer. Use the same details. If that new-customer price comes in lower than your renewal for the same coverage, you're paying a loyalty tax.
Get quotes from other insurers or use a comparison tool
Compare your renewal premium against quotes from other providers. The key here is comparing like for like: same coverage levels, same excess, same sum insured. A comparison tool or broker can help you see what else is available.
Ask a broker to review your policies
A broker will look at all your current policies and tell you straight whether you're paying a fair price for the cover you're getting. No guesswork needed on your end.
What you can do about it
Good news: the loyalty tax is completely avoidable. You just have to do something most people never bother with.
Shop around at every renewal
This is the single most effective thing you can do. Compare your renewal costs with quotes from other providers. Even if you stay put, a competing quote gives you leverage to negotiate a better price on your existing policies.
Call and negotiate
Premiums gone up? Pick up the phone. Most insurers have retention teams with the authority to offer discounts to customers who are considering leaving. It won't always work. But it costs nothing to ask, and plenty of people save hundreds just by making the call.
Don't auto-renew without checking
Set a calendar reminder a few weeks before your renewal date. That window gives you time to review your policies, check the costs, and shop around if the numbers don't look right. Auto-renewal is the mechanism insurers rely on. Don't hand it to them.
Use a broker
A broker reviews your cover and pricing every year as part of the service. If you're overpaying, they'll tell you. If better options exist, they'll find them. No hassle on your end. Learn more about how brokers work.
A word of caution: price isn't everything
Overpaying is bad. But switching purely on price can leave you worse off. A cheaper car insurance policy might carry a higher excess. A lower-cost contents policy might not cover your belongings properly if flooding or an earthquake hits.
Compare the cover, 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. For your home especially, the real cost of underinsurance only becomes clear after a disaster.
This is where a broker earns their keep. We 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 look at what you're paying now and tell you straight whether there's a better deal available.