Loyalty makes for an interesting phenomenon in consumer culture. Though the free market theoretically equalises loyalty by incentivising people to buy their desired product or service at the optimal price, companies have still managed to reclaim consumer loyalty serving their own interests.
By utilising tactics like store memberships, rewards programs, and loyalty cards, customers become incentivised to spend their money as much as possible; even if, it would be more advantageous buying from somewhere else.
Auto insurance is not immune from this phenomenon. When showcasing their packages to potential buyers, insurers love mentioning loyalty discounts, provided they offer them and most do. The amounts differ, but they will likely be somewhere between five and 15% off of a premium.
In theory, a loyalty discount brings about a mutual benefit. The client saves money on their policy, and the insurer holds onto a client who could easily be taking its business elsewhere. Everyone wins!
Or do they?
A client will only save money with a loyalty discount if the pre-discount price matches what could be found elsewhere. For example, a store offering a 50% discount on a $2 sodas will charge the same amount, just as a store selling them for $1 with no discount. Discounts are sexy in theory, but they serve no actual purpose if they don't bring about savings.
In fact, the same insurer that offers you a loyalty discount could easily be guilty of treating you with extreme disloyalty. Insurers have been known to employ a tactic called price optimisation that models customers' thresholds for accepting price increases, all in hopes of extracting the most money possible from them without losing them entirely. Thanks to the rise of big data in insurance, they're able to do it more accurately than ever.
No customer should automatically assume that they aren't being subjected to price optimisation.
Despite the prevalence of price optimisation, loyalty discounts are no a complete lost cause for clients. There are lots of factors that can make a loyalty discount something to be prioritized—besides the obvious reason that it might be an honest-to-God discount.
Switching auto insurers could also mean losing out on the bundling benefits that you are receiving as well, or that a new policy would require you to pay startup/activation costs. Sometimes it could even mean losing out on the accident forgiveness that is shielding you from even higher rates in the first place.
Unfortunately, there's no magic method for automatically knowing if loyalty pays or not. To make the proper determination, you'll have to weigh all the factors for yourself and see if the benefits of being loyal outnumber the pitfalls.