The answer is that the market doesn’t work in the interests of consumers. Reform requires deep-rooted cultural change, but incremental improvements can play a part.
For instance, the Financial Conduct Authority (FCA) has proposed that insurers should show the previous year’s premium when issuing policy renewal notices. The aim is to stop them raising premiums every year in the hope that people either won’t notice or are unwilling or unable to switch away.
It’s a simple idea, but then the most effective measures often are. They also tend to be based on empowerment and nudging people into being more proactive.
Axa started including previous premium details a few months back, but others have been slow to follow suit. Invariably it falls to the regulator to make firms do something they would already do as a matter of course if they were interested in treating customers fairly.
Auto-renewal has its advantages. It’s helped reduce the number of uninsured drivers, for example, while plenty of people appreciate the convenience of it.
The problem is that for all the time it might save us, auto-renewal is primarily designed to rip us off. Insurers lure us with low premiums for the first 12 months in the knowledge that we either won’t bother switching when the price goes up automatically, or that it’s too difficult to do so.
They’ve got the latter part nailed too, forcing you to jump through hoops if you want to switch away. They might tell you by email that you’ll be auto-renewed, only to inform you that cancelling requires calling a premium rate number (and doubtless a half-hour wait to get through). Some charge an exit fee, scandalously.
A glance at the Q&A sections on a handful of insurance websites shows how auto-renewal is pitched as being helpful to the customer. In a typical example, the suggestion is you won’t have to waste time and you won’t accidentally lose the many benefits of said firm’s membership.
The message is that we’re only too happy to make your life easier. Nor could it be easier for the insurer concerned to simply hike your premium and hope you don’t realise what’s going on before it’s too late.
That inertia, or even just hesitation, can be expensive. The six million or so drivers who auto-renew each year pay around £113 more on premiums than if they’d switched, according to Moneysupermarket.
There are other risks too. Auto-renewing usually means leaving the policy unchanged, which could leave you uninsured if circumstances have changed. Conversely, it allows insurers to reduce your cover, with the new detail so deep in the small print that you don’t find out that your policy is no longer any use until it’s too late.
The financial services industry is very good at encouraging and profiting from consumer apathy, which is why the FCA’s new measures must only be the beginning. Similar approaches are being used or considered in other markets, including cash savings and credit cards.
Maybe loyalty will soon be viewed as something to reward, not exploit.