Sunday 8 January 2012

The loyalty exploiters: If you renew home or car cover without seeking alternative quotes, you could be taken for a ride by a cynical insurer

By Jo Thornhill
If there is one New Year’s resolution you keep, make it this one: ‘I will not automatically accept the renewal notices sent out by home or car insurers.’
There is growing evidence from our readers of extreme, unexplained increases in home and motor premiums – even where policyholders’ circumstances have not changed and they have not made claims.
It is thought the falling number of policyholders who do not use internet comparison sites are being hit with bumper increases at renewal as insurers exploit their loyalty.
'It's a game': Eileen Harte, with twins Skye and Connor and Kyle, switched car insurer after Egg raised the cost of her premium by 50 per cent

Some critics even believe insurers’ computer systems identify the long-standing customers who have not complained about previous premium rises – and inflict the greatest increases on them. 
Motor and home policyholders are sent renewal documentation annually, but rarely any explanation of an increase in premiums. If policyholders do not respond, or switch, cover at the higher rate is
automatically applied.
Insurers insist that premiums are based purely on cover provided and the risk insured. But Financial Mail is aware of numerous cases where insurers have been challenged about a premium increase and then haggled, eventually agreeing to a cut, suggesting there are other factors at work.
Research by the Office of Fair Trading found that in Northern Ireland, where switching is far lower than in the rest of Britain, motor premiums are 11 per cent higher. This would suggest that premiums for new business are being artificially discounted to attract switchers, with loyal customers bearing the cost.
The growth in comparison websites, while excellent for consumers who shop around, has made the situation far worse for those who do not routinely switch, or who do not have access to the internet.
James Daley, editor of consumer magazine Which? Money, says: ‘As these sites have grown, the market has become more focused on price. To get the best price, consumers with motor and home policies must switch, or at least get new quotes with which to bargain with their existing provider, every year. If you don’t, you’re liable to be exploited.’
More than seven million drivers stick with their insurer at renewal time, with almost one-third never bothering to check whether they could save money elsewhere. With home insurance, 31 per cent stick with their provider every year. On average, older policyholders are more loyal, remaining for longer with one provider.
Motor insurance specialist Peter Harrison at comparison website moneysupermarket.com suspects that insurers do target long-standing customers for the biggest premium increases. ‘The renewals market is opaque,’ he says. ‘There is no way to know whether the  premium you are offered is competitive unless you shop around.
‘Insurers say they price each individual according to risk, but customers have seen a disproportionate rise in premiums when their circumstances have not changed and they have another year of no-claims. How can that make sense?’
Lee Griffin of comparison website gocompare.com agrees. ‘We can’t know how different insurers arrive at their renewal quotes, but we do know that loyalty is not rewarded with lower premiums,’ he says. ‘The people who don’t shop around at renewal subsidise those who do.’
However, the Association of British Insurers denies ‘exploiting’ loyal customers. Spokesman Malcolm Tarling warns: ‘If you are quoted less – either with your existing insurer or a new provider – check that the cover is equivalent.  A cheaper premium may well reflect inferior cover or a larger excess.’
One Financial Mail reader was shocked when his Direct Line home insurance premium increased by more than 50 per cent at renewal last October – from about £500 to more than £800.  
He managed to find an identical level of cover elsewhere for much less, but when he phoned Direct Line to say he was leaving, the insurer lowered its quote to £490.
Direct Line said the renewal quote had been mistakenly sent without a multi-policy special rate to which our reader was entitled. ‘When he called, we rectified this,’ a spokesman said. But the insurer admits new customers routinely receive discounts that end after year one.
Eileen Harte, a project manager from Connah’s Quay, Flintshire, has had the same experience. ‘Insurers attract you with a low price when you sign up, but then raise the premium sharply in future years,’ says Eileen, who has more than ten years of no-claims.
‘I paid £301 for fully comprehensive cover with no excess to Egg last year but the renewal this month was £446. How can a 50 per cent rise possibly be justified when I have not made an insurance claim and nothing else has changed?’
Eileen, who has three children, Kyle, 17, and seven-year old twins Skye and Connor, shopped around online and found a quote for identical cover for her diesel Peugeot 206 at just £237 with insure.co.uk, part of Hastings Direct. Egg then agreed to match the quote, but Eileen has switched.
‘It feels like a game,’ says Eileen. ‘You have to keep jumping ship or threatening to leave in order to get the best price.
‘What about people who don’t know to switch, or who don’t have access to the internet? They lose out.’
Four simple steps to help cut the cost
On Thursday, the Commons Transport Select Committee will publish its report into the cost of motor insurance, examining the factors behind rising premiums. But these practical steps can cut the cost of cover:
- Shop around at renewal time using comparison websites. Some insurers don’t list their products on such sites, including Direct Line and Aviva Direct, so call them. Experts claim you need at least seven quotes to make the best decision. Don’t forget to ask your existing insurer if it can better any new quotes before you leave.
- Increase your voluntary excess. If you agree to pay more towards the cost of accident repairs, you can usually bring down your premium.
- Protect your no-claims bonus. This protection may cost you a bit more at the outset, but it can be worth it as premiums often rocket after a claim.
- Cut your mileage. This should bring down your premium, but you must be honest about the figure.
Buzz This

No comments:

Post a Comment