Grant Woodward: Premium rates but little loyalty from insurers

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AS our lives get busier, we’re increasingly grateful for anything that leaves us with less to do. We don’t mind paying a few extra quid for someone to traipse around the supermarket for us and then deliver the weekly shop to our front door. The proliferation of hand car washes is proof that pouring endless buckets of frothy water and grappling with a chamois leather isn’t everyone’s cup of tea.

The big game changer, of course, has been the rise of the internet. With a few clicks of the mouse we can now do everything from book a holiday to download that song we like off the radio.

But this new way of doing things isn’t just convenient for us. It’s also a perfect opportunity for companies to take us for a ride.

My inbox pinged with an email from Tesco the other day. Its subject line read “Your insurance documents”. Entering my date of birth and post code as requested, I was directed to another screen.

This one thanked me for choosing to renew my car insurance and told me Tesco were “pleased to confirm cover has been provided as requested”. This was intriguing as I had made no such request.

I knew my policy was due to run out, but I’d expected to at least receive the courtesy of a quote first. Even more intriguing, however, was the cost quoted for renewing my policy. At £467 it was nearly £90 more than my previous year’s bill. How on earth could that be right?

“That’s the cost as calculated by our underwriters sir,” the call centre drone on the other end of the phone informed me.

“It may well be,” I said. “But how on earth do they arrive at it when it’s the exact same cover as I had last year, there have been no claims in the intervening period and my circumstances haven’t changed?” If he knew the answer, he wasn’t about to tell me.

Partly because I knew I could almost certainly get cheaper cover elsewhere, but mostly out of sheer boiling anger at being ripped off in such a blatant manner, I told him I wanted to cancel. Fortunately for me, I was still within the narrow window that insurance companies give for doing so.

Having jumped through the various hoops to get this done, I then went back to my computer screen. Tapping in the same details I’d supplied to Tesco, but this time on a price comparison website, I waited for the results.

Hey presto. Tesco wasn’t the cheapest, but it was in the top three. And the price? £380. The same I had been paying before my policy came up for renewal. So why was this price available for new customers but not those staying with the same company? Shouldn’t we be rewarded for our loyalty?

The answer is quite simple. Just as it was claimed this week that energy firms consistently set higher tariffs for those who haven’t switched, so insurers are looking to cash in.

Firms who engage in the practice of “auto renewal” seem to be banking on policyholders not bothering to check if their premium is going up and simply feeling reassured that they’re covered for another year.

Presumably they don’t mind when someone rings up to express their consternation and cancel on the spot, because for every one of us there are plenty of others who either don’t notice their payments creeping up or fail to spot it in time.

It’s not as if insurance firms can’t afford to reduce drivers’ premiums. Research last year found that Direct Line, which owns the Churchill brand, raked in annual profits of £262m. Admiral, meanwhile, made £373m from its car insurance business – up 20 per cent on the previous year. At the same time it increased its total dividend pay-out to shareholders to £245m – equivalent to £81 for each of its customers.

The Office of Fair Trading referred the industry to the Competition Commission after discovering drivers had little control over the way repairs were carried out and replacement vehicles provided. Such practices were ramping up premiums.

But what about the other ways these companies rip us off? Last month insurance bosses resisted pressure to lower the 41p a minute charge for calling an 0845 claim number from mobiles because they were worried about the dent it would make in their profits.

Ofgem this week referred the UK energy market for a full competition investigation, but what are the chances of the same being done for the insurance industry?

Pretty slim given that not a single Minister attended a recent meeting between the Government and insurance bosses to discuss rocketing premiums in the wake of the floods.

The current focus may be on energy providers but insurers also have a case to answer when it comes to giving customers a fair deal.