Car Insurance Premium Bucks the Trend

A Big Increase On Insurance Renewal Premium

With the AA reporting that car insurance premiums have fallen by 19.3% in the past 12 months and the BBC reporting that premiums “fall by £100 at start of year”, it came as a bit of a surprise when my current insurer put my premium up by almost 27%.

So, I phoned my insurer, Direct Line, to check why the premium bucked the trend.

How Did My Insurer Respond?

Direct Line was unable to adequately explain the increase, although they did offer the somewhat unlikely explanation that maybe crime had increased in my area.

They also offered to reduce the premium by reducing the level of cover.  But why should I accept less cover just to lower the amount I pay?

Next they offered me the same cover at a lower premium that would have represented an 8.5% increase over the previous year.  A step in the right direction but not enough.  It was not clear why they could offer me this on the phone but not in the initial renewal letter.

What Solution Did I Choose in the End?

Unhappy that this was still more than I paid last year when premiums were supposed to have gone down, I went hunting for alternative quotes. I found one that was 11% less than last year and provides better cover.  So, by shopping around I saved myself about £100.  Oddly enough, this was with the insurer, Churchill, that I had left the previous year, as they were too expensive!  Another interesting thing to note is that they are part of the Direct Line Group, so all I have done is move from one group member to another in 2013/14 and then back again in 2014/15.

If you are not used to shopping around for insurance, I hope this post illustrates why it may be worth starting…

Why Do Insurers Behave This Way?

Given that the cost of getting new customers is generally accepted to be higher than keeping existing customers, why do insurers not do more to keep the customers they have?  My insurer could have offered me a premium that was – say – 5% lower than last year and I would probably have accepted that.  By not treating me in a way I thought was fair, they lost my custom.

Of course, they may simply have not analysed the impact customers leaving has on their business.  But there is another possibility to consider: perhaps not enough of us switch.  Maybe they make more money from the increase each year to the premiums of existing customers, than they lose with the few customers who do leave.

Beware Auto-Renewal

One of the key weapons in their arsenal is auto-renewal.  Companies are often keen to opt you in to auto-renewal and set up a continuous payment authority to take the increased amount from your bank account each year, although they do have to seek your consent before opting you in.  [See my post on Avoiding/Cancelling Continuous Payment Authorities.]  I always make it clear when taking out insurance that I am making a single purchase of an insurance policy for just one year and that no consent is given for the card details to be used to set up auto-renewal.

One line on my renewal reminder particularly bothered me.  Although, I had bought a policy for just one year and had not opted into auto-renewal, in bold print on the second paragraph was a reminder of an admin fee (of nearly £50) to cancel the policy.  That admin fee does not apply, of course, because the single-year policy would simply lapse at the end of the year.

Why would this bold statement appear so prominently on a renewal letter sent out just before the policy expired?  It could be a clerical error, of course.  But is it possible that the insurer hoped this statement might fool me into believing I would have to pay an admin fee if I did not renew…?  Could it be that other customers who saw the same statement renewed their insurance, wrongly thinking that it would cost them nearly £50 not to renew?