Chances are you probably are and you don’t even know it that is until now. So what are familiarity fees and how can you avoid these hidden fees that may be costing you thousands of additional dollars each year?
Familiarity fees are an added cost to goods or services that you have become reliant upon overtime. Familiarity fees are based upon the assumption that most people believe and accept that any rise in cost of anyone product is due to either inflation or changing market conditions that would seemingly justify their increased costs. They are also designed not to be competitive and do not reward the loyal customer but exploit them. In addition they are in fact fees that are solely invoiced on an established trusted relationship between you being the consumer invoiced by that of the supplier of the goods you receive. These added fees or so called increased costs can rapidly add up over a short period of time, costing you the consumer thousands of additional dollars each year.
Familiarity Fees factor in mankind’s tendency to be complacent in identifying the reason for increased pricing of goods and therefore consumers are reluctant to search for a more competitive pricing in the market place. Familiarity Fees also take into consideration in order for the consumer to search for a more competitive pricing in the market place for any one good or services offered it takes a commitment by the consumer to do so in the form of time. Something many consumers are not willing to do on less tangible items in the market place. However, the irony is in sharp contrast many American will struggle to save a dime on their next in store purchase or even at what would now seem to be the relentless gas pump that we constantly dump money into.
How are Familiarity Fees used or applied and by whom then?
As stated earlier familiarity fees are applied when there is an ongoing trusted relationship between both the consumer and the supplier of goods received. Typically they are applied by an insurance broker, investment broker or where a non-tangible transaction is taking place and an ongoing relationship has been established.
Case in point, Cape Cod Massachusetts, Insurance premiums.
Many on Cape Cod and the outer islands believe that the area they reside is either un insurable or insurance is excessively priced due to its location off the southern tip of Massachusetts. As a result of this opinion many in the area no longer question the insurance bill they receive each year and feel they are lucky to be able to get any insurance on their property at all. As a result of this publicly held opinion combined with the fact that the majority of residences in the area are retired some insurance companies have over the years dramatically increased the cost of their premiums by adding in hidden Familiarity Fees.
In other words in this case we've got you on the hook and who knows when the next big storm is coming, so you need us possibly more than we need you.
The problem with this scenario is the mid-west sees more damage annually in the form of tornadoes and floods than Cape Cod does in hurricanes and when it comes to hurricanes Cape Cod has yet to experience anything like New Orleans or Florida has. But maybe Cape Cod is like California always burning or just waiting for the next big earth quake. Chances are probably not, the best Cape Cod can hope for is higher than normal tides and passing winds headed towards the city of Boston and let’s not forget some of the structures still standing on Cape Cod were built there prior to the United States declaring its Independence! In other words Cape Cod has not seen a truly devastating storm in nearly 300 years.
So let’s go back to our case and point as it relates to Familiarity Fees. Over the years it is conceivable an insurance policy written on behalf of a homeowner living on Cape Cod can increase by nearly $2,500 in additional fees / cost by continuing to remain with the same agent. However by sending the insurance policy out to bid in the competitive market place the same amount of coverage requested can in fact be reduced by nearly $2,500.
Why do long or short standing policy increase so much? Familiarity Fees were being applied and that’s why in life you never get to comfortable with those you trust your money with. When individuals treat personal financing and home ownership more like a business transaction chances are they will remain more competitive in the market place than their neighbors.