When it comes to money we’re a lazy bunch. We allow our hard-earned cash to wither in savings accounts with pitiful interest rates, we stick with our energy providers regardless of how much they rip us off, and we allow our insurance policies to auto-renew despite spiralling premiums.
New research from GoCompare has found that three million motorists are overpaying on their car insurance by a collective £800m because they allow their policies to renew automatically. That works out as a so-called “loyalty tax” of £260 each per year.
It’s not just car insurers who we’re allowing to rip us off. The Times tells the story of Marjorie Wallace, a 91-year-old who was paying almost £600 more a year for her home insurance than she needed to.
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Marjorie has held the same home insurance policy with NatWest for 17 years, auto-renewing each year and believing she was getting the best price.
In fact, she ended up paying nearly £740 a year for her home insurance, despite not having made a claim for more than a decade. When her nephew checked a comparison website he found she could get a policy with another insurer for just £88 a year.
Why do premiums rocket?
Profit. Insurance companies compete to win new customers by slashing their premiums to rock bottom so that they can get to the top of the comparison tables. They subsequently make up that money by increasing the premiums when it’s time to renew.
“Part of the problem is down to insurers’ methods for securing new customers… by competing to get to the top of the comparison tables. That comes at a loss to the insurers,” says Gareth Shaw, from Which?, in The Times.
“A loyal customer is then seen as an opportunity to ramp up the price over a number of years to recoup the costs of acquiring customers in the first place.”
What do I need to do?
Keep being a new customer as they get the best deals. This means shopping around for a new insurance policy for your car, home and travel each and every year.
“By auto-renewing you are paying a loyalty tax – you’re paying for the privilege of being ripped off, basically,” says Martyn John, from GoCompare, in The Times.
“The only way to get the best deal is by going out and increasing competition, showing them you won’t be taken for granted.”
And don’t just shop around for yourself. Elderly people are particularly vulnerable when it comes to the auto-renewal trap as they aren’t internet-savvy. So once you’ve sorted out your own insurance policy see if you have any elderly relatives who could do with some help reducing their insurance premiums.
What’s being done about it?
The Financial Conduct Authority has introduced new rules that force insurers to print your previous year’s premium on your renewal letter. This means you can see exactly how much more you will be paying.
Insurers go to great pains to tell you that you don’t need to do anything and your cover will continue. This isn’t good enough. Experts are now calling for firms to be forced to tell customers they can shop around for a better deal.
“We’d like to see insurers make sure that important information is prominently displayed, so that policyholders are actively and effectively encouraged to shop around every year,” says Georgie Frost, of GoCompare.
“At the moment, insurers can – and do – still give more prominence to messages that encourage people to do nothing, despite their premiums going up.”
