Staying with the same insurer for five years will cost you 70% extra
THE City’s chief financial watchdog is ruling nothing out in its bid to ensure buyers of general insurance get a fairer deal from providers in future. As part of its new study into the multi-billion pound general insurance market launched last week, the Financial Conduct Authority plans to size up how home and motor insurance is sold in other countries to see if Britain’s insurers can adopt any of their best practices. It is also looking at whether technology can help deliver cheaper prices for buyers.
The nub of its work will centre on why customers who loyally stick with their insurer are unwittingly exploited with premium hikes far above what new customers pay.
In preparing the groundwork for its study, the regulator found that buyers of household insurance who renew every year with the same insurer end up paying 70 per cent more after five years than someone buying the identical policy from the same provider for the first time.
This stark statistic confirms that loyalty does not pay – an issue The Mail on Sunday has consistently highlighted through its longstanding Broken Loyalty campaign.
Such exploitation of loyalty recently led Citizens Advice to lodge a ‘super complaint’ with the Competition and Markets Authority. The charity looked at key bills – including home insurance, broadband and energy – and calculated that 80 per cent of people are penalised for misguided loyalty in at least one of these product areas. The regulator has until the end of this year to respond to the complaint.
Efforts have already been made to force insurers to improve their treatment of trusting customers. Since April last year, home and motor insurers have been obliged for the first time to display the previous year’s premium on renewal notices so customers can quickly see the extent of any rise. The reg-- confirmed some insurers are likely to have their knuckles rapped for not playing by the book. Many are not displaying the old premium as required while others are burying it out of sight. Chris Woolard, executive director of strategy and competition at the regulator, says: ‘Some firms are not doing it particularly well.’ Of serious concern are ‘vulnerable customers’. Woolard says: ‘Someone renewing five years in a row is likely to be paying 70 per cent more than a new customer. Those who pay ten years in a row without comparing deals are even more of a concern – they are likely to be people with health conditions or older people with no access to the internet. They will find it hard to get the best prices.’
Woolard urges families who believe an elderly or sick relative has not been treated fairly on premiums to step in and help them complain to the insurer – and then escalate the complaint to the Financial Ombudsman Service if they are not happy with the response.
Customers should not delay taking action on insurance costs – the watchdog is not due to publish its final recommendations on improv- ing the general insurance market until the end of next year. The regulator has invited input by early next month on how the market can be improved.
Amongst ideas it wants to look at are customer-friendly practices in other countries. In Austria, for example, homeowners tend to take out a policy for several years.
Someone with car or home insurance should not just accept a renewal quote – even if it compares favourably to last year’s price. Use a comparison website service to check the competition.
But read the small print carefully to ensure any new cover is at least as good as the previous policy – taking particular care to check exclusions and excesses, the sums a policyholder must pay towards any claim.
Alternatively, ask a broker to do the legwork. You can find one via the British Insurance Brokers’ Association at biba.co.uk.