You’ve been with your insurer for five years, loyally paying each renewal without a second thought. One evening a targeted ad sneaks into your feed: "Switch today and save 35% on the same cover."
Wait, your company is offering that discount, but only to strangers. The feeling in the pit of your stomach has a name: the loyalty tax.
Below, we’ll unpack why it exists, which industries are the worst offenders, where loyalty is still rewarded, and, most importantly, the concrete moves you can make today to stop subsidising everyone else’s welcome bonus.
Industries That (Openly) Spit in the Face of Long-Term Customers
Home & Car Insurance - Renewal letters quietly climb each year. If you don’t shop around, you pay hundreds more than a new customer with the identical risk profile.NBN / Internet - "$80 per month but only for 6-months, then $120" When the honeymoon ends, your speed stays the same but the bill jumps. Oh, and it's only for new customers!
Electricity Retailers - Base rates creep up each July. They bet on your belief that "power is expensive everywhere right now", masking an inflated margin.
Banks (Savings Accounts) - A teaser rate (say 5.00% p.a.) lasts three months, then collapses to 1.25%. Unless you move, inflation eats your return.
Banks (Home Loans) - New customers snag rates 0.3-0.7% lower than yours. Ring and threaten to refinance and, miracle, they’ll match it.
LPG Suppliers - Loyal customers pay $159/cylinder. Pretend you're price-shopping and they “find” a $10 discount. Or change supplier and you might get it for $88/cylinder as a new customer. But be careful, you may end up paying the cylinder rental twice.
Notice the pattern: each product is low-engagement and pain-to-switch. Firms exploit inertia, your tendency to leave “good enough” on autopilot.
Industries That Still Roll Out the Red Carpet
Ultra-Luxury Autos (Ferrari) - Scarcity + waitlists. A long ownership history is the only way to access limited-run models.High End Watchmakers (Rolex, Patek) - Allocation priority, special dial options, and boutique events flow to proven collectors.
Five-Star Hotels - Loyalty programs unlock suite upgrades, late checkout, and concierge perks.
Wealth Management - High-net-worth clients receive dedicated advisers, bespoke portfolios, even private-markets access.
Integrated Resorts / Casinos - VIP hosts, comped rooms, exclusive tables - all designed to keep whales swimming in the same pool.
Michelin-Starred Restaurants - Regulars land prime reservation slots and off-menu tastings that one-off diners never see.
Common thread: high lifetime value per customer + capped market size. When each relationship is worth six figures (or more), churn is fatal.
Why Does the Loyalty Tax Exist?
- Short-Term KPIs: Public companies are judged on quarterly user growth. New sign-ups are the easiest headline metric.
- Confusing Pricing Tactics:Complex tariffs (energy), multi-factor risk models (insurance), or "variable" rates (banking) hide apples-to-apples comparisons.
- Behavioural Economics: Psychology (Status-quo bias), it's easier to do nothing than change.
- Search costs: Comparing deals is boring and time-consuming.
- Loss aversion: Fear of a "gotcha" with a new provider exceeds the anger at existing overpriced bill.
- Algorithmic Profiling: Preying on the elderly, or time poor, or under educated, or...
- Regulatory Lag: Watchdogs (e.g., the ACCC) react slowly. By the time new disclosure rules land, firms invent fresh loopholes.
Isn’t the ACCC Supposed to Stop This?
Australia’s competition regulator has teeth, but it needs proof of misleading conduct or cartel behaviour to prosecute. Loyalty pricing itself is legal as long as:- Terms were disclosed (fine print counts)
- No false statements were made
- Competition genuinely exists; i.e., you can switch
The ACCC has pressured some insurers and telcos to improve renewal transparency (large-font "last year vs this year" comparisons), but enforcement is piecemeal. Policy ideas on the table include:
- Opt-in auto-switching: Bill goes up? You're rolled onto the cheapest equivalent product by default
- Mandatory "loyalty penalty" reporting: Firms must publish the average price gap between new and existing customers
- Consumer Data Right expansion: Easier one-click porting of banking, energy, and telco accounts
Until legislation bites, the burden stays with us.
How Big is the Loyalty Tax for Most People?
| Product | Avg. Loyal Price (Monthly) | Avg. Switch Price (Monthly) | Annual Penalty |
|---|---|---|---|
| Home Insurance | $123.33 | $95.00 | $680 |
| NBN 50/20 | $100.00 | $80.00 | $240 |
| Car Insurance | $110.00 | $85.00 | $300 (assuming 2 cars per family) |
| Electricity Retailers | $180.00 | $150.00 | $360 |
| Banks (Savings Accounts - Lost Interest) | $250.00 | $80.00 | $2,040 |
| Banks (Home Loans - Extra Interest) | $3,400.00 | $3,200.00 | $2,400 |
| LPG Suppliers | $159.00 per cylinder | $88.00 per cylinder | $284 (assuming 1 cylinders per quarter) |
| These things add up quickly and could easily be +$5k per year you are out of pocket | |||
Five Moves to Dodge the Loyalty Tax (Takes Under an Hour Each Year)
- Calendar Your Comparison Day
- Mark the week after tax time. Jump on iSelect, Canstar, Finder, or Energy Made Easy, and collect fresh quotes.
- Leverage Retention Teams, Not Front-Line Support
- When you call, ask straight for "disconnections" or "customer retention". These departments have the authority to match intro rates.
- Bundle Only When It Makes Mathematical Sense
- A multi-policy discount can be a velvet handcuff. Bundling internet with electricity could be cheaper and beneficial, or not. Always price each product stand-alone before accepting the bundle.
- Vote With Your Feed
- The best way would be for all consumers to actively switch. The more the better, so post publicly when you switch to encourage others also. Companies track brand sentiment like hawks; visible churn stories hurt more than a private complaint.
What If Loyalty Matters to You?
Some people simply dislike the hassle of juggling twelve providers. That’s valid. In that case:- Choose firms whose business model hinges on retention, eg Member-owned mutuals (Teachers Mutual Bank, RACQ, HCF) who often return profits via lower rates rather than shareholder dividends.
- Opt for "price-match guarantees". AGL and Origin occasionally promise to undercut any advertised rival tariff.
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