Simply renewing your home or motor insurance without shopping around can mean paying high premiums in a competitive market
It came out of nowhere. With no clear explanation, a retired academic saw the insurance premium on his second home leap by 56% – even though he has made no claims and the house is in a sleepy countryside village.
When Philip Jones* called Saga, which insures both his London home and the holiday home, to pay his premium for this year, he was told the cost had jumped from £280 to £436. His experience echoes that of other Guardian Money readers, and reflects an ongoing problem in the industry whereby some insurers have been accused of taking advantage of loyal customers by bumping up their premiums, sometimes via automatic renewals.
This has prompted calls for renewal notices to flag up the amount paid the previous year as well as the new premium – an idea which is being trialled at the moment.
I was shaken by this massive increase, since I have never made a claim on this policy, my circumstances have not changed and the little village in which the house – a three-bed semi-detached – is located is virtually a crime-free area, and the property is not at risk from flooding or subsidence,” Jones says. “When I asked for an explanation I was simply informed that ‘there has been a general increase in premiums over the past year’.
In fact, it would have been reasonable to expect Jones’s premium to go down if it had followed industry trends. According to AA Insurance’s latest index, premiums for the first three months of this year were down by around 3%.
Last summer, the industry’s main trade body, the Association of British Insurers, proposed to the Financial Conduct Authority that all renewal documents for motor and home buildings and contents cover should show the premium the customer paid the previous year alongside the renewal quote for easy comparison.
This would allow people to know immediately if their premiums had gone up and by how much, making it easier to work out if they are being overcharged.
Some experts have claimed that because the letters policyholders receive usually only give the renewal quote, some customers will simply accept the new quote and may not realise they are being asked to pay much more than in previous years.
The average motor and home insurance premium have fallen, so it is sensible to shop around for the best policy and price
“It’s a very competitive market. The average motor premium and the average home insurance premium have both fallen over the past year, so it is sensible, like in any commercial marketplace, to shop around and get the best policy at the best price,” says an ABI spokesman.
The ABI adds that the new minimum standards of information it is calling for should cover all policyholders, whether they buy their cover direct from an insurer, a broker, their bank or a price comparison website.
A trial is now underway, with a group of general insurance companies testing out measures which should help customers make decisions, including listing the previous premium.
The results are expected in a few months’ time, a spokeswoman for the FCA says. “We will report back shortly, but encourage firms to develop innovative solutions that will benefit consumers in the meantime.”
In February, Axa became the first major insurer to announce that it would tell customers how much they paid for their previous premium when sending out renewal notices.
Insurance companies have faced repeated criticism for inflating the premiums of older customers while chasing new ones with cheaper deals. Back in 2008, Money reported on the case of Direct Line customer Robert King who was quoted a renewal price for his home insurance of £551. When he went on to Direct Line’s website as a “new” customer he was quoted a premium of just £173 … for a better level of cover.
Another reader who wrote in to Money earlier this month says that when he sought a competitive price for his home insurance, he saved hundreds of pounds. “We switched from Aviva, our insurers for over 20 years, to Co-operative Insurance.
Our premium went down from £663.56 to £187.92,” he says. “We [then] received a letter from the Co-op to say there had been an error in the calculation of our premium, which should have been £171.05. A refund will be paid into our account. I was so amazed I had to tell you about it.”
In the case of Jones, he had originally found it difficult to get a quote for the property, as it is made from a wooden frame. After he contacted Saga about the increase it agreed to reduce the premium by £30, leaving him with a bill of £406.36.
Even with this reduction, the increase in the cost of the policy still stood at 45% on the previous year. A search by the Guardian, using similar property details, produced six possible quotes ranging from £244 upwards.
A spokesman for Saga told us that the property was an unusual one to insure as it is a holiday home and has timber walls. Just one of the underwriters on its panel, Towergate, offered cover, but “re-rated the risk on this type of property”, which drove up the premium.
There is a happy ending for Jones, however. Following Money’s intervention, Saga says the underwriter has agreed to waive the increase, and his premium will remain at £280 for this year and next year.
By Shane Hickey