A new report released today has revealed that the average household can be losing £367 a year on their insurance and energy bills, by not switching: and your personality traits could be the reason.
In the last week alone, both British Gas and Virgin Media have announced huge price increases. British Gas customers will see their electricity prices increase by 12.5%, in a move that will affect 3.1 million customers – Virgin Media's will see their bills leap 4.7% – affecting up to five million households.
The new 'The real price of being too nice' report, from assistant Professor of Consumer Behaviour, Joe Gladstone at University College London, research consultancy Populus and GoCompare, has revealed that despite the constant increase of prices, people in the UK simply can't be bothered to switch providers – and this has a lot to do with personality traits.
According to the study if you're an optimistic, agreeable or nice person you are more likely to stay with a provider, as you're more likely to 'like' things about your account. Those experiencing financial distress tend to avoid information contained in bills. They look at a bill for less time and remember less information from it. As a result, often those with the most to gain, are less likely to switch. As well as those with lower incomes andpeople who have difficulty controlling their spending.
Those more likely to switch providers were people with greater financial literacy, who discount the future less and optimistic people with more self-control.
The report drew on contemporary thinking in behavioural economics, unique experiments and in-depth primary research of 5000 people, getting them to dig out their actual bills to calculate exactly how much worse off non-switchers are compared to those who switch. It reveals just how much money is being taken from people – completely unnecessarily. The experiments suggest the financial services industry isn't geared up to help the financially distressed and those who are too nice too switch.
"In the energy market, lots of default tariffs of energy suppliers are a bad deal for consumers. Consumers can get a good deal if they keep switching every year but the reality is a lot of people don't know how to do that because they don't know when it is they need to switch."
People in the UK experiencing financial distress are also less likely to shop around, calling to question the efficacy of industry initiatives, such as FCA's recent requirements for insurance renewal notices. While the experiments in this report show that the initiative does increase the likelihood of people shopping around for another quote, it misses those most in need – the financially distressed who are reluctant to even look at their bills.
The research went on to show that people who have never switched services are £2.1bn a year worse off based on car insurance, home insurance and energy alone. It reveals the extent to which the industry exploits the character traits of the not-so-rich-and-famous, to keep them on poor-value products.
Matthew Crummack, Chief Executive Officer of GoCompare, said:
"While many financial service providers and energy companies regularly tell their customers that they want them to be loyal, our research suggests that this loyalty is actually costing consumers billions of pounds a year in higher bills. And the burden often falls most heavily on those least able to afford it, or those too nice to switch. Our report reveals the extent to which this tendency to over-pay is even greater when standard industry practices are combined with certain consumer character traits.
"To beat the bills, people need to get bothered and get switching. But industry players also need to address the issues raised here. Financial and energy providers need to communicate more effectively. Letters and bills often aren't read in detail by the most financially distressed, and so they need to be easier to understand. People shouldn't receive communications telling them that it's business-as-usual and that they needn't take any action, when the cost is actually going up."
1 in 4 consumers have never bothered to switch their service providers (18% have NEVER switched car insurance, 32% have NEVER switched energy provider and 28% have NEVER switched home insurance). Consumers paying monthly for products, like car and home insurance, are up to 33 per cent less likely to switch.
In comparison, customers who do switch pay £367 less a year on their home bills – £144 a year on car insurance, £110 a year on home energy bills and £113 a year on home insurance.
When it came to switching across the UK – Newcastle has the highest rate of switchers in the UK, with the Welsh city of Cardiff having the lowest.
The UK cities with the 'switchiest' people (based on switching savings accounts):
- Milton Keynes