Are you paying too much for your insurance? Most of us consider insurance essential, whether it’s for your home, car, pet or holiday. However, it’s often difficult to know whether you’re getting the best deal when it comes to policies. Now, a new assessment from the Financial Conduct Authority (FCA) suggests that many people are being overcharged for insurance and that this is disproportionately affecting those on low incomes. So how can you avoid the big insurance premium rip-off?
What does the FCA research say?
The FCA found that six million motor and home insurance policyholders are being overcharged by insurance companies by around £200 a year – each. According to the regulator, this is the result of the “loyalty penalty,” whereby the customers that remain loyal to insurance companies are not being offered the best deals. However, the regulator’s negative assessment of the insurance industry goes further than highlighting how insurance companies aren’t giving loyal customers the best deals. It also found that the sector is actually targeting those they consider to be the most loyal with the biggest price increases because they are the least likely to switch. There are also many ways in which the insurance industry will try to put up obstacles to customers leaving for another, cheaper provider, for example by using automatic policy renewal practices. The spotlight being shone on the industry by the FCA comes in the wake of a significant rise in customer complaints about the insurance sector – complaints about renewal hikes, for example, increased by two thirds in just one year.
Who is being affected by the increases?
Recent examples of those who have been hit by the premium rip-offs have been published in the mainstream media. They include:
A customer who said hiked his home insurance premium rose from £313 to £1,119 this year.
A 97-year-old customer of Lloyds Bank being charged £1,000 for a home insurance policy that was available for £247 if bought online.
A couple in their 90s who were facing a 20% increase on home insurance, which would see them paying £579 a year, as opposed to the £108 that the policy was available for online.
Elderly and low-income groups were identified by the FCA as the most likely to be hit by insurance price rises. Two years ago the FCA introduced the practice of requiring insurers to publish the premium from the previous year when sending out a renewal letter to try and stop this happening. However, there is still more that could be done, for example requiring providers to automatically switch a consumer to the cheapest deal that is most appropriate for them.
How to avoid the insurance rip-off
Make sure you take the time to compare your options. Often, it’s only when you start looking at the deals that are available elsewhere that you can see how much less you could be paying. Price comparison sites are the most obvious resource for this but bear in mind that they don’t include every available option.
You don’t have to use a price comparison site. There are other ways to get a good idea of what’s available to you in terms of insurance options. For example, you could deal with an insurance broker or look at non-insurance company providers, such as banks or supermarkets. You can also simply research policies from insurance providers recommended by family and friends or those positively reviewed online.
Be specific about what you need. If you know exactly what type of policy you require it will make it much easier to make comparisons and find a cheaper alternative.
Take steps to reduce the cost of your premiums. For example, if you want to pay less for home insurance then you can look at increasing the security of your property or build up your no claims discount for a couple of years. To minimise the cost of car insurance, opt for a make and model from a low insurance group when you next buy a car or take steps to ensure the vehicle is more secure, for example by fitting an immobiliser.
Pay annually. Remember that if you’re able to pay for your insurance annually, as opposed to on a monthly basis, you are always going to be able to get the insurance for a lower price.
Insurance may be essential but that doesn’t mean that you have to be caught out by insurance premium rip-offs.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley