Shopping around for a better deal on motor or home insurance is easy, reports Jeff Salway
Automatically renewing your insurance each year is usually the easiest thing to do and the quickest. Unfortunately for millions of car and home insurance customers, however, loyalty doesn’t always pay.
Anecdotes abound of insurers quoting extortionate premiums, only to quickly find the generosity to offer a discount when the customers kicks up a fuss. But insurers also know that those customers are in a minority – and they are bumping up their margins by taking full advantage.
The average household sticking with the same home insurance provider misses out on savings worth £125 by failing to secure a more competitive deal, according to new research by Moneysupermarket.com.
It found that despite the potential savings on offer from shopping around, almost a third of home insurance policyholders automatically renew their cover each year.
Scots are the most likely to stick with their current provider, along with the Welsh, said Moneysupermarket.
Half of the households with home insurance have been with the same provider for more than two years, with 9 per cent missing out on potentially huge savings by staying loyal for a decade or more.
Hannah Mercedes-Skenfield, insurance spokesperson at MoneySupermarket.com, said: “Having the choice to automatically renew your home insurance is an appealing option for time-poor homeowners – but ask yourself, is it worth paying such a hefty price for the convenience?
“Shopping around for the best deal is quick and easy, but by not doing so, consumers effectively watch their hard-earned cash go down the drain.”
But it’s not always that cut and dried, largely because many people feel providers are not sufficiently transparent. Complaints to the Financial Ombudsman Service about buildings and contents insurance soared by 31 and 23 per cent respectively in the 12 months to the end of March.
One factor driving that increase was a rise in disputes over the fairness of the premiums quoted on renewal. A growing number of people are complaining to the ombudsman when they find quotations for new policies on the insurer’s website that are cheaper than the renewal premiums they had been offered.
And it can be a substantial difference, with new policies often some 20 per cent cheaper than those that are automatically renewed.
It’s a similar picture for car insurance. If anything, however, the often eye-watering cost of car insurance can make it especially costly to renew your policy automatically.
Renewals are an increasingly common cause of conflict between consumers and car insurance providers, the ombudsman told The Scotsman. Disputes over renewals account for up to one in ten of the complaints it receives about car and motorcycle insurance complaints, although they are often part of wider complaints.
It received 1,744 new motor insurance complaints in the three months to the end of June alone.
One problem frequently arising was that people have taken out policies with new insurers without realising that their existing insurer would automatically renew their previous policy, leaving them paying for two insurance policies.
The opposite has happened too, where people who believed their policy would be renewed automatically only later discovered that it hadn’t, meaning they were driving around uninsured and at risk of hefty fines or more serious penalties.
So why have renewals become such a common cause of conflict in recent years? One obvious reason is that most of us now pay our premiums by direct debit. Not only does that make it far easier for insurers to renew automatically, but it can also encourage a complacency on the part of the consumer, who is less likely to keep tabs on exactly what is being paid, and when.
The end of the “days of grace” period is another factor.
This was a cover extension period that allow consumers to shop around for better deals when their policy came to an end. It was scrapped in 2005 in an attempt to stem the rise in uninsured driving. New regulations were introduced requiring insurers to send customers a renewal notice at least 21 days before their policy expires.
The problem is that not all insurers are making it sufficiently clear to customers when their policy is set to expire, or that it will automatically be renewed unless they take action.
“Their strategy relies on consumers being apathetic when the renewal notice arrives or being just too busy to think about switching,” according to Andrew Hagger, head of communications at Moneynet.
“The premiums gradually increase over time and in many instances, consumers lose track of what they are paying for their cover and whether it represents good value.”
So it’s essential to act when you get the renewal notice, which you should receive three weeks before your policy terms end. At that point you can find out the premium you would pay on renewal and compare that with others on the market, by using comparison websites to shop around.
Of course, if you do switch, remember to cancel the existing policy straight away, or you will find yourself with double cover.
If you change your mind on the new policy you have a cooling-off period of 14 working days in which you can cancel without charge. It’s also worth asking your insurer if it can offer a better deal, as Erikka Askeland explains in Case Study 1.
Either way, the message is clear. “Don’t automatically renew, otherwise you’re playing into the hands of the insurance companies,” said Hagger. “It’s simple to shop around online.”
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