The end of cheap car and home insurance? - Martin Lewis

This is a warning for anyone who pays for car or home insurance. There’s a rules revolution coming that is likely to mean the end of cheap switchers’ deals. So, even if you’re not at renewal, this is my clarion call to urgently check now if you can get a better deal.
One tip is always use more than one comparison site for car insurance.. Picture: PA PhotoOne tip is always use more than one comparison site for car insurance.. Picture: PA Photo
One tip is always use more than one comparison site for car insurance.. Picture: PA Photo

From January 1, 2022, regulator the Financial Conduct Authority’s new insurance rules mean insurers will have to prove, on aggregate, that they charge new and existing customers the same, including any vouchers or cashback.

The aim is to end the loyalty penalty – the fact that those who just renew each year often see their price walked up, meaning that after five years some pay more than double what new customers do.

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I can hear the cheers. This has long been a bone of contention. And indeed, it’s great news for those who don't switch, or do but don't want the hassle (you can tell there’s a ‘but’ coming). The ‘but’ is firms are unlikely to just cut renewals to match newbies’ prices. My best guess, based on similar past change, is firms will drop existing customers prices somewhat, but also increase new-customer rates, so they meet in the middle.

There will still be some savings from moving insurer and new entrants trying to disrupt the market, but they’re likely to be smaller. And while the new regime officially starts in January, as it's a big job, insurers will likely start to shift pricing algorithms sooner, so the clock is ticking.

Having analysed over 70 million quotes, the sweet spot to check if you can get cheaper prices elsewhere is 23 days before your renewal for car insurance (21 days for home insurance). Leave it later and car insurance prices can rise 50 per cent (20 per cent for home insurance) because insurers rate those who leave it to the last minute a higher risk. I have huge successes reported by those who try this. Yet if your renewal is further away, say six months, because of the rule change coming, it’s worth checking now anyway if you can cut costs.

If you find a substantially cheaper policy, just cancel your existing one. Provided you've not claimed or reported an incident this insurance year, you should get a pro-rata refund minus a £50ish one-off admin fee (do check first) which you should factor into any ‘will I save’ calculation. And bear in mind you might not earn this year's no-claims bonus.

I’ve listed quick steps below, though to do it properly, you can find far more detailed help and options in my full guides at www.moneysavingexpert.com/insurance.

Always use more than one comparison site. Sites such as www.confused.com, www.comparethemarket.com and www.moneysupermarket.com are insurance marketplaces, they may have different prices for the same insurer. So for the widest comparison use at least two, and more if you've time. Yet they don’t always win.

Remember to check www.directline.com which isn’t on comparison sites and if you’ve more than one car in the household, multi-car insurance can be your winner. Providers include www.admiral.com, www.aviva.co.uk and www.lv.com.

Yet if you already have multi-car then first look at individual policies via comparison sites because new customer incentives are still strong, so the opposite to what you’ve got can be cheapest.

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Ensure you’re getting the right policy. Always check that the cover is suitable for you. And make sure you know what you’re buying. With car insurance, there are some savings which seem counter-logical – they’re a matter of trial and error.

Don’t assume third party is cheaper than comprehensive. The act of selecting a higher level of cover cuts costs for some as insurers perceive you as a lower risk. Adding a responsible second driver (like a parent) can bring down your average risk level (not as a first driver though as that could be fraud).

With home insurance, buildings insurance is normally only for freehold property owners, leaseholders and renters will usually be covered by that (though some leaseholders’ circumstances may be different, so check).

The easy way to think of the difference is to imagine turning your home upside down: everything that stays put is buildings; the stuff that falls (plus anything integrated such as white goods) is contents. For buildings, don’t over-insure: you only need to cover the cost of rebuilding your home if it were knocked down, not the purchase cost. There’s a calculator at abi.bcis.co.uk. For contents, don’t under-insure: if you only insure half the value of your stuff, you may only get half the pay-out if you claim.Don’t pay monthly. When you choose to pay monthly, in practice most insurers pay the annual fee for you via a loan, which you then pay back, plus a hefty whack of interest. If you can’t afford to pay in one go, you may be better off paying with a zero per cent credit card (see www.mse.me/interestfree). Just ensure you don’t borrow more and clear within a year.

Like where you are? Haggle. If you’re happy with your existing insurer, still check to see if you can find cheaper deals elsewhere, then ask your existing provider to match it. Success rates of those who try with big providers can be as high as 70 per cent.

Check cashback sites or use their comparisons. Sites such as www.topcashback.co.uk and www.quidco.com give up to £40 if you buy a policy through their comparisons, which are rebadged versions of Confused.com (though you don’t get the perks it gives going direct).

Alternatively, if you find a cheap price elsewhere, check if you can get the same price buying through a cashback site, and you could get up to £70 on top. Always see the cashback as a bonus though, sometimes it doesn’t track or isn’t paid out.

Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 7.5 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip

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