Insurers rake in £300m from extra fees in just six months
THREE of Britain’s biggest insurance firms have raked in almost £300million in six months from selling extras and charging customers to pay in monthly instalments.
Millions of motorists and homeowners are affected by these underhand tactics, which are making insurance behemoths Admiral, Hastings and Direct Line hundreds of millions of pounds.
Customers who cannot afford to shell out for their insurance premium in one annual lump sum are often invited to split the cost over monthly instalments. But when they pay monthly, the insurer charges interest as if they are repaying a loan – and rates are often punishingly high.
Insurers also make more money by charging drivers and homeowners a fee if they want to change or cancel their policy.
And they squeeze out even more money if policyholders want to tack on extras, such a legal or breakdown cover.
For an average 30-year-old male insuring his Ford Focus, the typical cost when paying the whole year’s insurance up front would be £705.80, or £527.37 if he shopped around for the best offer.
But on one of the worst paymonthly deals he could be charged up to £1,207.43 over the course of a year according to comparison website Gocompare.
These sort of rip-off monthly rates have raked in £150.5million for Admiral, Hastings and Direct Line in the first six months of this year. The same three insurers together charged customers £136.6million for extra bolt-ons to their cover in the same six months. That adds up to more than £286million overall which would therefore rise to almost £600million over the course of a whole year.
Labour MP John Mann said: ‘Consumers are being misled by confusing information into paying much more than they should be for monthly payments.’
Aashna Shroff, of personal finance website Money, added: ‘Although paying in one go annually may feel like a big financial hit, it’s usually the cheapest option – if you can afford it.’
Anyone struggling to make ends meet could use a 0pc purchase credit card, Miss Shroff advises, although they should be careful to pay it off within the interest-free period and check if the insurer charges extra fees for paying by credit card.
Customers who manage to avoid this money-making scheme may still find themselves filling up the insurance firms’ coffers, as they pay for add-ons such as legal or breakdown cover which could be found much cheaper elsewhere.
For example, the Ford Focus driver mentioned above would pay an average £53 for legal cover and £30 for breakdown.
It would cost an average £60 to cancel the policy early – but in some cases, the bill can be as high as £300.
The industry-wide cost is expected to be much higher, as many other insurance companies do not reveal their figures.
A spokesman for industry body the Association of British Insurers said: ‘Many customers may value the range of ancillary products or optional policy addons offered by insurers.
‘Customers paying for their motor insurance in monthly instalments may have to pay more as they are effectively taking out a loan for the cost of the cover and paying it back over 12 months.’