Auto-renewal is when an insurance company automatically renews a policy every year, with the premium deducted via direct debit or from a credit card.
We see this as a problem because, according to our research, people often have little or no idea they’re agreeing to auto-renewal when they first buy their car insurance policy – the information is tucked away in the small print.
The situation is aggravated by the fact that it is difficult for customers to opt-out of the process.
For example, while drivers are opted-in online, it is often only possible to opt-out using expensive premium rate telephone numbers, during office hours. Some insurers also levy cancellation fees - even during the statutory 14-day cooling-off period.
Cost of auto-renewal
We reckon auto-renewal costs UK drivers £1.3 billion every year – that’s around £2 million in each of the UK’s 650 Parliamentary constituencies – because it deters them from shopping around for a competitive deal.
Typical drivers are paying £113 a year more if they auto-renew rather than shop around.
The topic is under active review by the Financial Conduct Authority (FCA), which regulates UK financial markets. We’ve asked MPs to support our campaign for the FCA to force insurers to allow customers to opt-out of auto-renewal in a speedy and straightforward fashion.
In addition to cost of auto-renewal, we’re concerned the process could conceal significant changes to a driver’s policy.
We reckon auto-renewal costs UK drivers £1.3 billion every year – that’s around £2 million in each of the UK’s 650 Parliamentary constituencies
This is because renewal letters and emails are usually peppered with phrases such as “Happy anniversary” and “Relax – you don’t have to do anything”. Material changes to policies, such as an increase in the excess payable by the policyholder following a claim, are not prominent.
Equally, drivers are deterred from volunteering important information about changes to their circumstances, such as a change of address or marital status.
In some circumstances, this could even lead to their cover being invalidated.
Our research shows that 62% of consumers say auto-renewals deter them from shopping around for a more affordable policy.
And almost six million drivers (23% of the driving population) automatically renewed their car insurance with their existing provider when their policy was last up for renewal, without checking a single other quote.
Dan Plant, MoneySuperMarket’s editor-in-chief, said: “As our report lays bare, auto-renewal is far from fair, it reduces proper competition and ultimately costs consumers big money.
“Our Eight Point Plan shows how insurers can make the auto-renewal process fairer and clearer, helping customers to save money.
“Simple changes such as writing renewal notices in plain English, asking consumers to explicitly opt-in to auto-renewal when they buy their policy, and providing a click-through cancellation button on renewal emails will help drivers to make sure they are not paying more than they need to.”
The FCA is due to report on auto-renewals in the next few weeks.
MoneySuperMarket’s Eight Point Plan
Auto-renewal can be an important safety net so drivers do not find themselves uninsured. To address the current failings in the auto-renewal process, and to tilt the balance of fairness back towards the consumer, MoneySuperMarket is challenging the insurance industry to adopt eight simple best practice recommendations:
1. Consumers should be clearly asked whether they want to opt-in to auto-renewal when first buying their policy;
2. Cancelling auto-renewal should be really simple when people receive their renewal notice. Such as a click-through button on emails or a simple cancellation form sent with the letter;
3. Last year’s policy price should be displayed clearly on renewal notices, next to the new price;
4. 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;
5. Renewal quotes should clearly include proof of any No Claims Bonus, to enable easy switching to alternative policies;
6. Renewal notices should prominently warn customers that 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;
7. Renewal notices should be in plain English;
8. People must be prominently told about the cooling-off period, during which it should be free to cancel.
The full MoneySuperMarket Auto-Renewals report can be downloaded here.
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