HOW INSURERS RIP YOU OFF
Paying by instalments for car and home cover costs Britons £500m
DRIVERS and homeowners who pay for insurance monthly are being charged hundreds of pounds a year extra.
Figures suggest up to 7.6million motorists and another 8million homeowners are affected by the rip-off, which is making at least £500million a year for Britain’s biggest insurers.
In some cases, those who pay monthly are charged £300 a year more than they would if they paid one annual fee.
Customers are usually invited to pay a premium in monthly instalments if they cannot afford to cover the cost in one lump sum.
But many do not realise that if they do this, their insurer will effectively treat the premium as a ‘loan’ – and charge punitive interest rates on the ‘repayments’ as high as 45 per cent.
This means the total amount the customer ends up paying is hundreds of pounds higher than their annual quote. Often the difference is not clear unless they read the small print.
A Daily Mail investigation has found the practice netted three of the largest insurance firms £122.5million in the first six months of this year. Several more refuse to say what
they earn, but experts estimate the industry is pocketing an extra £500million from pay-monthly customers.
Those caught out are most likely to be older homeowners on tight budgets and younger drivers – who typically have higher premiums and less spare cash.
In recent weeks, insurers have reported higher numbers of customers opting to pay monthly. It is thought this is down to steep rises in insurance costs caused by increased insurance premium tax and bogus whiplash claims.
Last night campaigners called for the monthly instalment rip-off to end.
Fairer Finance’s James Daley said: ‘It’s a tax on the poor … The interest rates charged are punitive and exploitative. They don’t bear any relation to the interest rates set by the Bank of England, so this feels like a ruse dreamed up by insurers to make extra cash.’
An insurance quote often gives an annual price if paid in a lump sum, and also a monthly cost. But it is not always clear, except in the small print, that the monthly cost is higher overall – because insurers charge an interest rate to those who pay in instalments. Many customers do not realise the impact
‘Ruse to make extra cash’
this will have, and opt for instalments as this is a common way of paying bills.
Paying monthly is popular with young drivers, who pay the highest premiums. The average motorist aged 17-24 pays £1,103 a year, according to comparison site Moneysupermarket.
A study by the Mail found that in one case, Debenhams and Endsleigh had the highest interest rates on the market at 44.7 per cent and 44.1 per cent respectively. It means the average young driver would pay back around £112 a month, making their policy £235 more expensive than if they paid annually.
Labour MP John Mann said: ‘It is disgraceful the insurance industry is profiteering from those who need to pay monthly. It is high time they stopped mistreating customers.’
Justin Modray of advice group Candid Money said: ‘This is money for old rope because millions of people can’t afford to pay for their insurance as a lump sum. A lot of people don’t realise they’re paying over the odds … It’s just a very easy way for insurers to make very large amounts of money.’
Research commissioned by price comparison firm GoCompare shows 20.1million car insurance policies in the UK, with 38 per cent of people paying monthly. It means as many as 7.6million drivers may be suffering from rip-off charges.
GoCompare said two in five homeowners pay insurance monthly, a total of 8million.
Insurers do not routinely reveal profits from hitting monthly payers with extra charges, but some have declared it in their accounts.
Direct Line Group, which has 7.3million customers, earned £55.8million in instalment fees in the first six months of this year. It typically charges interest of up to 12 per cent, costing a typical young driver £69.21 more.
Chief executive Paul Geddes said its rate was ‘very competitive’ compared with other insurers.
Esure, which provides car insurance to 1.7million, picked up £21.8million. It charges 11.6 per cent more, or £67, for the average 17 to 24-year-old.
A spokesman said ‘instalment income’ had risen because the firm was selling more policies and because of higher average premiums across the industry.
Hastings Direct had squeezed £44.9million out of monthly payers among its 2.5million drivers. The firm hikes prices by 14.9 per cent, costing a typical young driver an extra £85.
Boss Gary Hoffman said: ‘We’ve never had a complaint about this, people just like the convenience of [paying monthly].’ Those that refuse to share the information include Aviva, Legal & General and More Than owner RSA.
An Aviva spokesman said that with instalments ‘we are effectively lending the customer the money to pay their premium’.
In May, the Mail exposed how insurers were punishing loyal customers by hiking motor premiums by up to £1,000 a year if they forgot to shop around for a new firm.