Insurance: When customer loyalty turns licence to take for granted

LOYAL insurance policyholders are forking out hundreds of pounds more than they need to for their cover because insurers are under no obligation to offer them their best price.

This practice, widespread on policies including home, travel and car insurance, is now under attack from consumer champions. Calls are growing for insurers to be forced to give existing customers the best deal at the first time of asking and make it easier for them to see just how their premium has changed since last year. As it stands, insurers typically offer heavy discounts to new customers to attract business, but those deals remain out of reach to existing policyholders. Car insurance customers could slash their average annual premium by almost £530 by shopping around for new comprehensive cover instead of simply renewing, according to recent figures from AA Insurance.

A spokeswoman from consumer group Which? said: “Insurers who do not offer a good deal to consumers at renewal are attempting to exploit customer inertia rather than reward loyalty.

“We want renewal documents to show both the new premium and last year’s premium so that consumers see how much their premium might have increased.”

It is worth taking your insurer to task even when there has been only a modest change in the premium, she added.

“We suggest that people always challenge the renewal quote and check whether the cover still meets their needs.”

Certainly, this approach paid dividends for one reader who saw his renewal premium from Direct Line slashed by 40 per cent as soon as it was questioned.

Adam Hendry, a Smart Money reader from Glasgow, had been with Direct Line since 2001. Keen to make sure he was getting the best value for his home insurance when the renewal quote came in, he looked around at what else was available and then challenged the price of £1,423 he had initially been offered.

This was reviewed and, at the first time of asking, he was surprised to see £570 lopped off the initial renewal quote. This brought the new premium for his cover down to £853. “It is incredible that 40 per cent was knocked off my premium just like that,” said Hendry. “Had I not challenged Direct Line I would now be hundreds of pounds out of pocket. This approach is completely unacceptable and I have since moved my policy as a result. In doing so, I have also managed to get an even better quote.”

Hendry is now insured with Saga, where he found commensurate cover for £763. As he discovered, insurers will rarely offer their best price at renewal unless they are forced to do so.

In turn, this will leave many who do not query the renewal quote paying a lot more than they have to.

A spokeswoman for Direct Line defended the insurer’s prerogative not to offer its best price up front.

She said: “We may respond to a customer’s queries by reviewing their specific circumstances, which would include claims history, length of time as a customer, and risk. We also use their call to us as an opportunity to review their cover requirements, and this review may alter their premium.”

Direct Line said the onus was on its customers to shop around and make sure they were happy they had the best deal.

The problem for consumers is exacerbated by the fact that the Financial Services Authority (FSA), which regulates insurers, has no remit to interfere on premium levels and so is toothless in terms of changing insurers’ behaviour on the prices they offer customers.

Indeed, even though the FSA has rules in place to stipulate that customers are treated fairly and insurers deliver the best possible outcomes, it is simply powerless when it comes to the level of the premium charged.

A spokesman for the City watchdog said: “We do not have rules on pricing. In essence, insurers are not forcing that deal on their customers, who are free to go away and find another one.”

As it stands, there are no plans for the FSA to be given greater powers allowing it to intervene in this way. Consequently, insurers will remain free to set their renewal rates as they please.

It is, therefore, essential that consumers refuse to automatically accept the renewal price they are offered as being the best price their insurer can provide. In many cases it is not, and those that do not question it are likely to suffer.

The approach taken by insurers to their customers is unlikely to change unless more policyholders decide to vote with their feet.

Even if you cannot find a better price elsewhere, it is still worthwhile challenging your existing insurer on its renewal quote.

Those who do not ask will not get and it will cost dearly.