Are you stuck in a car insurance loop?
If you have car insurance, you may well have fallen foul of insurers automatically renewing your annual policy. But you don’t have to take it lying down.
How would you feel if, 12 months after enjoying an all-inclusive 14-night holiday in the Caribbean, you are charged because you failed to respond to a letter stating you’ve been booked into the same suite for the same dates one year on, albeit at a higher price?
Surely you’d be looking for hidden cameras and a cheesy TV host lurking in the bushes. After all, this is ridiculous, isn’t it? Well, perhaps not if you are a motorist, as this is what UK insurers do day in, day out, thanks to policy clauses allowing them to automatically renew your insurance every year.
They may even try to access your cash if you change your credit or debit card by making a request for payment straight to your account provider.
Insurers imply they offer auto-renewal to ensure you don’t forget to buy new annual insurance when your current policy expires. They fall back on the fact that it’s illegal to drive without car insurance, so they are doing us all a big favour, right?
Perhaps not, as some insurers state in their terms and conditions that they reserve the right not to auto-renew, should they wish not to. It’s therefore painfully clear that insurers will auto-renew your policy to prevent you from driving without insurance – if it suits them. If not, you need to go elsewhere, which is probably a good idea, given renewal premium prices can invariably be beaten by the competition.
It makes you wonder why anyone would even consider automatically renewing their policy. Of course, this is not what happens in reality, as most of us have busy lives and it’s convenient to just take what’s on offer from our existing insurers. The bottom line is insurers rely on customers being too busy or lazy to shop around, and reward loyalty by charging high renewal premiums, just so they can entice new customers with cheaper insurance.
Anyone has the right to refuse a renewal quote and has two weeks to reject an insurance policy, thanks to the Financial Conduct Authority’s cooling- off rules, which state: “The 14 days begins either from the day the cover starts or from the day the consumer receives the policy or renewal documents, if that is later than the start date.”
This is acknowledged by most insurers, but there are some practices that policy makers indulge in that are not so welcome. Chief among these is an administration charge, which could be levied on a policy that was renewed because you failed to opt out or reject it in time.
Admin fees are reasonable if you are a new customer, given the effort to generate your quote, draw up the documents and send them to you. But where’s the effort if you’re sent a renewal notice? After all, the company already has all the details and is happy to set you up for another year on that basis.
Of the 10 car insurance policies Moneywise looked at, two stood out as imposing particularly high cancellation fees – those from AXA and Swiftcover. At the time of writing, both charged £25 if you cancelled within the 14-day cooling-off period. This seems steep, but is arguably fair, as according to the FCA rules, companies can levy a fee for the service actually provided by the firm.
“This must not exceed a proportionate amount of the full premium and must not be such that it could be construed as a penalty for cancelling,” says the FCA.
AXA and Swiftcover policies also state they will impose a £52.50 charge if a customer cancels outside the 14-day period. This fee is on top of the usual pro-rata deduction levied for the period of time the policy was running prior to cancellation. Yet it’s hard to see why it becomes twice as expensive to cancel a policy on day 15, for instance, than day 14.
We asked AXA and its sister company Swiftcover to justify their admin fee structures. A spokeswoman said: “We currently charge £25 to cancel policies within the cooling-off period to reflect the administration cost to us of setting up the policy. However, we plan to remove this charge in early 2016. Our cancellation fee outside of this period of £52.50 reflects the administration costs we incur during the policy term, including the cancellation of the policy.”
Not all insurers impose admin fees. Aviva, for instance, doesn’t charge a penny if the policy hasn’t commenced Incidentally, at least the AXA and Swiftcover policies clearly detail what they charge.
Others, such as Admiral and Endsleigh, don’t, which is hardly fair – and could prove costly, so make sure you read the small print.
It’s worth noting that many insurers will fire off a renewal notice at least 21 days before your existing term ends. You would think this is a helpful way to jog your memory about the insurance renewal date. However, it is less than convenient if the letter gets lost in the post, you are on holiday or have dismissed the envelope as junk mail and binned it.
It seems the onus is on you to cancel the renewal, rather than the company’s responsibility to ensure you don’t want a new policy to be in place for another year.
Putting aside whether you approve of auto-renewals and think this 21-day warning period is fair enough, some insurers’ terms and conditions appear to be less even- handed. Diamond Insurance, for instance, states in its policy: “If you cancel your policy within 14 days from the receipt of your welcome or renewal letter or email, you will receive a full refund minus an administration charge.”
So if you receive a renewal notice you must pay a charge – which is not stated in the policy - to reject insuring with it for the next year.
Equally rough is the fact that insurers can pursue you for renewal payment even if you’ve changed your credit or debit card. For example, the Nationwide car insurance policy says: “If you’ve chosen our continuous payment option, we’ll automatically renew your insurance policy before it expires. As part of our renewal process, your debit or credit card provider will tell us your new card number if it has changed.”
Just in case you think this is a one-off, the Swiftcover.co.uk policy includes the following: “By purchasing this policy, you have provided consent to set up a continuous payment authority.
This mean (sic) we are authorised to automatically renew your policy and apply for renewal payments from your account every year, even if your card has expired, until you instruct us to stop.”
It’s not all doom and gloom
But if the whole renewal issue appears unfairly weighted in the insurance sector’s favour, the good news is the industry is scrutinising this matter.
The Association of British Insurers (ABI) has written to the regulator, the Financial Conduct Authority (FCA) calling for regulation, across the whole market, which will improve clarity and transparency at renewal for all home and private motor insurance customers.
Separate to this, the ABI is finalising a voluntary code of practice to support potentially vulnerable private motor and household customers. Malcolm Tarling, spokesman at the ABI, said: “The purpose of the code is to help complying insurers put in place a strategy and appropriate practices to ensure that customers who may be significantly less able than a typical customer to protect or represent their interests do not suffer detriment as a result.”
In December 2015, the FCA showed its commitment to a fairer deal for consumers by publishing proposals requiring insurers to publish details of previous premiums on renewal notices. It is hoped this will make it easier for people to compare quotes and should encourage them to shop around. It is also expected to make insurers more competitive.
What you can do about auto-renewals
You don’t have to auto-renew. However, if you fail to tell your insurer, it will do it for you. Here’s what you can do if you don’t want to have your existing policy renewed.
- Let your insurer know you won’t be renewing your annual cover soon after you buy your current policy.
- Check your insurance policy for the phone number or email address to opt out of auto renewal.
- Keep a record of any correspondence on auto-renewing.
- Even if the auto-renew premium you are given seems good, it is still worth using a price comparison site to see what the competition will offer, and then checking the providers these miss, such as Direct Line and Aviva.
- If your circumstances have changed, meaning comparison sites won’t provide quotes for you, contact the British Insurance Brokers’ Association on 0370 950 1790.
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
The period of time you’re allowed, after signing an agreement, to cancel it without incurring a financial penalty. Financial products including banking, credit, insurance, personal pensions and investments are subject to a 14-day cooling-off period (this is 30 days in the case of life insurance and personal pensions). The insurer or broker must refund any money paid by you within 30 days, although it has the right to deduct a reasonable admin charge, and a sum proportionate to the number of days’ cover you had. If you have any related credit agreements, these will also be cancelled.
Association of British Insurers
Established in 1985, the ABI is the trade body for UK insurance companies. It has more than 400 member companies that provide around 90% of domestic insurance services sold in the UK. The ABI speaks out on issues of common interest and acts as an advocate for high standards of customer service in the insurance industry. The ABI is funded by the subscriptions of member companies.