I don’t know about you, but one of the things that most infuriates me about the financial services industry is the way that it treats its most loyal customers. No-one is worse than the direct insurers: they lure you in on the basis of a rock-bottom quote, and if you’re stupid enough to stay more than a couple of years they wind your premiums up and up and up and up until eventually you realise that you’re being taken for a fool, and you go onto a comparison site, and find to your relief but also to your fury that you can save hundreds of pounds by switching, so you do, and then the whole cycle starts all over again.
It happens that a friend has a top job in a direct insurance provider, so a while ago I quizzed him quite sternly about this. “Why do you do it?” I demanded. “We all hate it – surely you know that?”
Yes, he replied, he did indeed know that. What’s more, he hated it too. But here’s the thing: emerging from a complicated matrix of consumer tests of this and other pricing strategies, one conclusion stood out as clear as anything. In terms of business performance, no other approach worked anything like as well. “Quite simple,” he told me. “I need those loss-leader rates to bring new customers in – and then I need to increase their premiums in every subsequent year in order to make money out of them. And, oh yes, there’s another element to this. I need to make money out of them to hit my targets. And I need to hit my targets or else I get fired.”
As we talked, I realised that there was a third, somewhat shadowy figure circling round the room where we were sitting. On closer inspection, it turned out to be a genie. And emblazoned on his stereotypically 1001 Nights attire were the words “consumer trust.”
On the table between us, there was an empty bottle. But as my friend spoke, the genie, in his circlings, never once came within yards of it.