Finally the finance watchdog is taking action to protect us all from being ripped off by huge, sneaky rises in insurance premiums.
From April next year, insurance companies will have to clearly state on renewal notices what we paid last year, so we can make an instant comparison.
At the moment, very few do this, which means if you want to check you have to dig out last year’s renewal notice (who keeps those?) or spend an endless amount of time listening to hold music so you can ask your insurer.
The fact is, insurers don’t really want you to pay any attention to what you paid last year – because that allows them to jack up your premium, often by a double-digit percentage without you even noticing.
The worst cases are when you’ve also opted to auto-renew. That way you don’t have to do anything at all to be ripped off!
The new ruling from the Financial Conduct Authority will apply to all those offering insurance – home, car and breakdown cover, for example.
The FCA has also said it will not allow insurance companies to raise prices unfairly before the new rule takes effect, in April next year.
A Spokesman Said called for the percentage increase to also be shown, because this is often massive, well into double figures.
However, just forcing companies to reveal last year’s cost is a great boost for customers.
But it will only work on consumers’ behalf if they also get ready to shop around for better deals
That’s certainly true. You should always check what specials are being offered to new customers – if they’re not available to you as a loyal customer, get ready to cancel your contract, then rejoin, becoming a new customer.
And if the company won’t have that, just find another company.
The fact is that the FCA has proved that clear pricing comparisons like they are now insisting upon, do work – they make people shop around.
Previous research found that the majority of us automatically renew every year, at the price quoted by the provider.
The FCA said: “In collaboration with one home insurer and two motor insurers, we conducted field trials to test the potential for improved renewal notices to encourage consumers to switch or negotiate their policy at renewal.”
Here’s what the FCA found
“We find that putting last year’s premium on renewal notices causes between 11% and 18% more consumers to switch or negotiate their home insurance policy.
“The effect is larger for consumers offered higher price increases at renewal.
“We find little evidence of price increases at renewal for customers at the two motor insurers, and including last year’s premium has no effect.
“Other changes to renewal notices, including simplifying renewal notices, sending information leaflets, and sending reminders have little or no impact on consumer behaviour.”
It’s always good to do the science, but this all seems a bit obvious – if you charge people a lot more AND you show them you’re doing it, they are more likely to shop around.
If you don’t charge them lots more, they are more likely to stay as they are.
Leaflets and simpler language make no difference. It all comes down to price. Brilliant!
What the FCA also found is very interesting – they looked at three home insurance providers and they found that most of the insurance premium price rises happen in the first five years of renewal, after that they tended to level off.
What this means is that during those first five years customers need to be hyper alert to jumps in premium prices.
The FCA survey also found that “customers underestimate the benefits of shopping around and overestimate the amount of time it takes.
The truth is it couldn’t be simpler.
“Our evidence for the motor insurance providers varies by insurer, with consumers showing fewer signs of inertia and some firms showing little evidence of price increases at renewal.”
So, in other words, many car insurers are less likely to rip you off. Why? Because we’re much more willing to go to a comparison site for car insurance and walk if we find a better deal.
Now it’s up to all of us to spread the word – it pays to shop around.
If you know someone who’s elderly, or vulnerable in any way – they may just have a trusting nature – let them know the score.
Spread the word on social media: #AvoidInsuranceRipOffs
Here’s our simple list of FOUR insurance DON’T
1. Don’t auto renew
Insurance companies love it when you agree to this. But the truth is they are only relying on your complacency, and, even if you agreed to it in the past, you can simply say ‘no thanks’ if you don’t like their latest price. The insurer has to tell you what the new premium will be, even if you have previously agreed to auto-renew.
2. Don’t forget to check the market
Check even if your premium hasn’t gone up, and check even if it’s gone down (unlikely!)
There may still be better deals around. Look what’s being offered to new customers, for example.
3. Don’t be loyal
The days of trusting banks and big financial institutions are long gone. Some people, especially the old school and the elderly, still do seem to think these companies will look after their customers and do the honourable thing.
They won’t! If you give most financial outfits half a chance, they’ll happily take you to the cleaners. Don’t give it a second thought – if they won’t give you a decent deal, SWITCH!
4. Don’t only consider price
Don’t ONLY focus on price at renewal. Of course, it’s important, but it’s just as important to ensure you have the right insurance for your needs.
Renewal time is a good chance to review those needs and double-check. You might find a great price, but if you don’t meet all the conditions, for example, you might find your insurance won’t pay out if you claim.
Have you been ripped off by your insurance company? Tell us about it on A Spokesman Said.