We at MoneySuperMarket have long criticised an insurance company ruse called auto-renewal. Now the insurance market watchdog, the Financial Conduct Authority (FCA), has joined in the criticism – which could help you save £100s on your car insurance. Auto-renewal affects car insurance along with other products, such as home cover. But car insurance grabs the spotlight because so many of us have it, and this sort of insurance takes such a mighty whack out of household budgets. The auto-renewal process is when the insurance company signs you up to automatically renew your cover with them every year.
Small printCustomers often agree to auto-renewal without knowing – the details are buried deep in the small print when you take out your policy – and once you’ve signed-up, the insurer is able to simply take the renewal premium from your bank account or credit card each year. And that’s nasty because the renewal premium is often substantially higher than the previous year’s. The insurers say it’s easy and convenient for the motorist – you’ve probably seen a letter where they tell you to relax, you don’t need to do anything, we’ve got you covered – and they argue that it stops anyone from accidentally becoming uninsured to drive. But we say it’s anti-competitive and leads to people paying more than they need to for their insurance. And, in some instances, people even end buying cover twice.
Lobbying campaignWe’ve been lobbying the MPs, the government and the FCA to reform this practice, and now we’ve seen some positive response. The FCA has issued proposals whereby insurers will have to print last year’s premium on the renewal notice, and tell those who’ve renewed more than four times with the same firm that they should consider shopping around. The regulator said: “Our proposals aim to address concerns that some consumers pay higher prices if they stay with the same insurer, particularly for a long period of time. The FCA has found evidence of low levels of consumer engagement, switching, and a lack of competition when some types of insurance policies are renewed. “We hope the proposals encourage more people to shop around for the best product for them. It is important that insurers give their customers the information they need to do this and ensure they’re treating their customers fairly.”
Pivotal momentThis is a pivotal moment for the insurance industry and we couldn’t be happier the FCA has decided to address the bad practice of auto renewals. Our recent analysis into auto renewals in the car insurance market found almost six million drivers automatically renewed their car insurance with their existing provider when their policy was last up for renewal at an average extra cost of £113, meaning UK motorists are being stung for £1.3 billion each year simply by staying loyal to their insurance company.
More action requiredBut while we’re pleased with the FCA announcement, it doesn’t go far enough to eradicate the ills associated with auto-renewal. We want the FCA and the rest of the insurance industry to consider our full eight point plan for best practice:
- Consumers should be clearly asked whether they want to opt-in to auto-renewal when first buying their policy
- Renewal notices should be in plain English
- Last year’s policy price should be displayed clearly on your renewal notice, next to the new price
- Any significant changes to policies – such as the imposition of a larger excess or removal of breakdown cover – should be clearly displayed on renewal notices
- Renewal notices should prominently warn customers they must inform insurers of any changes in their circumstances, such as a new address, change in job, annual mileage or points on their licence
- Renewal quotes should clearly include proof of any No Claims Bonus, to enable easy switching to alternative policies
- Once a customer has renewed, they must be prominently told about the cooling off period, during which it should be free to cancel
- Cancelling auto-renewal should be really simple when a renewal is received, such as a click-through button on emails or a simple cancellation form sent with the letter.