The life insurance and pensions industry is losing billions of pounds a year as firms splash out to attract clients but fail to keep them long enough to cover the cost, a report claimed yesterday.
Customer loyalty - known in the insurance industry as "persistency" - has long been seen as a problem for a sector where each new client comes with a hefty price tag in commissions and set-up costs, but often leaves before the investment has been recouped.
The report by accountants KPMG said the problem was worsening, with insurers lagging behind sectors such as retail banking as few firms made comprehensive efforts to retain customers.
"The bulk of the efforts of a life company, about 90 per cent, goes into acquiring new business and perhaps only ten per cent is spent on existing customers," Craig Graham, a financial services partner at KPMG, said.
"The use of retention teams is far more prevalent in retail banking than in life assurance. There are next to no examples of products that reward loyalty in life and pensions."
KPMG said it estimated that in 2004, new business added between £1.2 billion and £1.8 billion to embedded value (an industry measure that values how much a life insurer is worth to shareholders) in the UK sector.
KPMG's survey included 11 of Britain's top life and pensions companies and 20 of the leading banks and building societies.