Car insurance renewal: what you need to remember
Every year, millions of people receive a letter from their car insurance provider, informing them their policy will be automatically renewed. "Do nothing," the letters state, "and your cover will continue".
The problem is that the new cover tends to come at a higher price, which is usually well above inflation and far more expensive than the premiums offered by rival insurance companies.
When people take out insurance, they often do not realise that their cover is not for a single year, but will automatically continue unless they cancel it. Insurers know that a certain percentage of their customers - whether due to apathy or naivety - will not go to the effort of finding an alternative quote.
According to the Financial Ombudsman Service, up to 340 people made complaints about car and motorcycle insurance renewals in the first two months of this year. As well as pricing issues, the ombudsman said typical complaints concerned consumers who took out insurance policies with new insurers but failed to realise their old policy would be automatically renewed, leaving them ‘doubly insured'.
There is a good reason for firms renewing people's car insurance premiums - it is a crime to drive without insurance. Arguably, firms are protecting people by ensuring there is not a single minute where they might be driving without cover.
According to recent research from insurer Direct Line, one in 20 (5%) of motorists was on the roads without insurance for over a month, while 6% of drivers have driven for at least a day without any insurance after work out a new car insurance policy.
Worryingly, of that 6%, the average forgetful motorist ended up driving without insurance for seven days.
Nearly a third (30%) of motorists who unwittingly drove without insurance admitted renewing their policy had "just slipped their mind". However, 27% mistakenly believed their motor insurance automatically renewed at the end of each year and ended up uninsured when their policy expired.
But just because insurers are helping protect drivers, doesn't mean they should get away with selling vastly over- priced policies - especially to existing customers who might not realise their insurance is rising by a large percentage.
"As having valid car insurance is a legal requirement for all motorists, the auto-renewal option gives customers the peace of mind that they will not be left unknowingly uninsured should they need to make a claim," a Direct Line spokeswoman argued.
Read our checklist in the box below to help make sure you don't lose out from an automatic renewal.
Your insurance renewal checklist
- Read your renewal letter carefully. Just in case, note the cut-off date for informing your provider you wish cover to discontinue.
- Are your premiums being raised substantially?
- If they are, ring your provider to see if they are prepared to negotiate.
- If they will not negotiate, check a comparison website such as moneywise.co.uk/compare to see if you can find a policy offering the same (or better) cover at a cheaper price.
- Ring your current provider again to tell them you will leave unless they can match the quote you have found.
- If they still won't budge, consider switching. But if you take out a new policy, don't forget to cancel the old one.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.