Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 316

Simple fixes could save consumers up to $3.6 billion in ‘loyalty taxes’

A ‘loyalty tax’ occurs when discounts are offered to new customers while longer-term customers pay more. Often this involves increasing premiums at the first and subsequent renewals.

As the NSW government’s Insurance Monitor, charged with making sure insurance companies do not charge unreasonably high prices or mislead policy holders, I have had my office research the prevalence of loyalty taxes.

Our research last year showed, on average, customers renewing their insurance policy paid 27% more than new customers. Our most recent data indicates the gap has risen to 34%. This translates to hundreds of dollars for the average home and contents insurance policy.

Loyalty taxes appear to be widespread in Australia. The Australian Competition and Consumer Commission concluded from different pricing inquiries that loyal customers of both banks and energy providers end up paying more. It also demonstrated the price difference for insurance in northern Australian – with one insurer on average charging renewing customers 15-20% more than new customers.

In Britain, regulators have calculated that customers are, by their fifth renewal, paying about 70% more than a new customer. The Competition and Markets Authority estimates the total cost of loyalty taxes in five British markets – mortgage, savings, home insurance, mobile phone contracts and broadband – to be about £4 billion (about A$7 billion) a year.

Translating this British estimate to the equivalent sectors in Australia (taking into account differences in population and GDP), the cost to consumers could be as high as A$3.6 billion, or at least $140 a year per person. This estimate does not include the energy sector, where evidence suggests the practice of charging longstanding customers more is rife.

Deceptive practice

Discounting to win new customers is not fair if the costs of that discount are passed on to longstanding customers. It discriminates against people who do not or cannot easily switch to another supplier. Vulnerable consumers – elderly consumers, those on low incomes, low education, or those with a disability – are disproportionately affected.

Complicated pricing structures often make it hard for consumers to compare quotes to see if one deal is better than another.

Consumer awareness of the loyalty tax appears to be low. It’s quite possible they may not be aware they are paying more each year. Companies can get away with making large price increases over successive renewals with little fear a customer will switch.

This practice is deceptive and falls short of community expectations. Greater respect for loyal customers is something the Hayne Royal Commission said financial institutions should have better regard for.

An important reform

In NSW, in my role as Insurance Monitor, I introduced a requirement that insurers must display last year’s premium on the renewal notices to policyholders. The information is provided in a similar way as it is on a domestic water bill. It’s now a mandatory requirement in NSW, coming into effect this month.

But the good news is that all of the major insurers have decided to make the change nationally.

Ensuring customers can see just how much their bill has gone up since last year is a significant reform – one I have been pushing over the past five years, since I was involved in monitoring the pricing of insurance in the context of an insurance levy reform in Victoria.

Information empowers consumers. It puts pressure on insurers to justify any increases.

If you are not happy with the increase, or the explanation for it, you should shop around and reassess your options.

You will need to get a couple of quotes. Our research shows major variations in insurance quotes for identical homes with identical risks. Every quarter we seek quotes for a specified home with identical risk, and the highest quotes are up to 2.7 times that of the cheapest.

More can be done

The insurance market is in many respects like other sectors. While there are lots of brands to choose from, the market is highly concentrated and not particularly competitive. Like the banking industry, there are just four major players.

The larger problem, however, is on the demand side. Consumers are generally not well informed. The complexity of products and the large amount of fine print in contracts makes it hard for customers to tell if they are getting a fair deal. Once they’ve made a choice, most will not think about switching, because it’s time-consuming, costly and inconvenient.

I hope this reform will help increase awareness of what consumers are paying – and not just for insurance. I encourage governments and policymakers around Australia to support and continue with reforms aimed at better disclosure for consumers. NSW has taken a small step. But much more can be done.The Conversation

The Conversation

 

Allan Fels is Professorial Fellow at the University of Melbourne.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

  •   25 July 2019
  • 1
  •      
  •   
banner

Most viewed in recent weeks

Want your loved ones to inherit your super? You can’t afford to skip this one step

One in five Australians die before retirement and most have not set up their super properly so their loved ones can benefit from all their hard work and savings. 

Super is catching up, but ageing is a triple-threat

An ageing Australia is shifting the superannuation system’s focus from accumulation to the lifecycle of retirement. While these pressures have been anticipated for decades, they are now converging at scale and driving widespread industry change.

Has Australia wasted the last 30 years?

The 20 years after Peter Costello left Treasury have been deemed wasted...by Peter Costello. The missed opportunities for Australia began long before.  

Indexation implications – key changes to 2026/27 super thresholds

Stay on top of the latest changes to superannuation rates and thresholds for 2026, including increases to transfer balance cap, concessional contributions cap, and non-concessional contributions cap.

The refinery problem: A different kind of energy crisis in 2026

The Strait of Hormuz closure due to US-Iran conflict severely disrupted global energy supply chains. While various emergency measures mitigated the crude impact, the refined product market faces unprecedented stress.

3 ways to defuse intergenerational anger

With the upcoming budget increasingly likely to include bold proposals to alter the tax code I’ve outlined three incremental steps with fewer unintended consequences.

Latest Updates

Investment strategies

War can’t be good, can it?

War brings immense human suffering and geopolitical chaos, but historically, equity markets have shown a certain detachment and resilience amid conflict, leading to increased profitability despite initial panic.

Property

Origins of the mislabeled capital gains tax ‘discount’

Debate over the CGT discount is intensifying amid concerns about intergenerational equity and housing affordability. This analysis shows that the 'discount' does not necessarily favor property investors.

Superannuation

Div 296 may mean your estate pays tax on assets your beneficiaries never receive

The new super tax, applying from 1 July, introduces more than just a higher rate on large balances. It brings into focus a misalignment between where wealth sits and where the tax on that wealth ultimately falls.

Investment strategies

There’s more to software than just code

AI-driven fears of collapsing software moats has triggered indiscriminate sell-offs. This has created mispricing opportunities as markets overreact to uncertainty and rising discount rates.

Economics

Europe: A new growth trajectory powered by reform and investment

Europe is undergoing a major transformation driven by security threats, US pressure, and a shift from austerity to growth. EU member states are taking proactive measures to enhance competitiveness and resilience.

Investment strategies

Orbital AI data centers prepare for launch

The new space race is driven by AI as data centers in space offer continuous solar power and reduced environmental impact. Orbital AI aims to speed data processing and ease Earth's resource strains.

Retirement

Little‑known government scheme can help retirees tap into $3 trillion of housing wealth

The Home Equity Access Scheme in Australia allows older homeowners to tap into their home equity for retirement income, yet remains underused due to lack of awareness and its perceived complexity.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.