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Could this help to demystify the costs of insurance?

Do you know how your insurance is calculated, or why the price can change? Research by Co-op Insurance has revealed that most of us don’t, so James Hillon of Co-op Insurance explains what they’re doing to end the confusion.

Here at Co-op Insurance we recently commissioned some independent research and found that two thirds of consumers find general insurance too confusing.

What’s more, almost three quarters don’t think their insurer tells them enough about how the money they pay for their insurance is used. For example, whether it’s used for paying out claims, how much of it goes towards tax, or why the price of insurance may change annually.

Clearing things up

These findings show that people do have an appetite to know more, something that the Financial Conduct Authority and other consumer bodies (including Which?) have already highlighted.

As a business that is owned by members, we’re committed to improving transparency and are keen to champion a better kind of insurance. We want to provide peace of mind to members, customers and communities.

How does home insurance pricing work?

We recognise that the insurance sector can do more to make it easier for people to understand why buying insurance is important. We can also help individuals make informed choices when it comes to the type and level of cover they buy. So that’s why, as part of a new pilot scheme, we’ve developed a tool which explains how home insurance pricing works.

So far, around 10,000 of our home insurance customers have received a guide that uses a range of digital diagrams to explain how insurance premiums are calculated. It shows how much different claims can cost and how often they are made. As more than a quarter of people don’t understand why the price of insurance may vary from year-to-year, importantly, it also clearly explains the reasons why premium prices can fluctuate annually.

How could you understand insurance better?

We’re listening to customers’ views on this tool, and using it to shape the tool for the future. To date, the feedback we have received shows the majority of customers have found it useful. A number of insurers have expressed an interest in the tool as well.

It’s important to engage with customers on an ongoing basis, not just when they make a claim. So, we’re looking at options to explain how insurance pricing works in more effective and easy to understand ways.

Focussing on fairness and simplicity is also key and we think our new guide is just the starting point on the journey to improving transparency – but it’s an important step in the right direction.

We’d love to hear your thoughts on our insurance pricing tool – do you find this kind of tool helpful? What else would you like to see to help demystify the cost of insurance?

This is a guest contribution by James Hillon, Products and Pricing Director at Co-op Insurance. All opinions are James’s own, not necessarily those of Which?


We live on the very edge of an area that is classed as a greater risk area. Across the road in our little cul-de-sac, they are on the edge of what is classed as a better area so their insurance is lower.

How are these areas classified and why such anomalies?

The article above leads you to a page justifying the costs to the Co-op but doesn’t actually tell you how they work out your insurance which is the big mystery to all of us.

It is a welcome step in transparency and one has to wonder why it has never? been done before.

The use of post-codes is a rather convenient for insurance companies to broadbrush areas but nastily indiscriminate if not modified by personal circumstances. When I worked as a general insurance broker I was unsurprised when one lady came in to complain that after making three expensive claims on contents over three years no one wished to insure her.

So you claims record and that of people in similar areas, and whether you live at home , plus the dreaded post code which is tied to the crime and claim record are the drivers for the premium. The missing piece a lot of the time is the commercial judgement of the insurer with how much they think they can profit from you. Hence Saga and them taking advantage of those who never realised what the real premium elsewhere was.

I have been a fan of LVFS for decades. Friendly Societies also are not so profit driven

An interesting tool particularly in giving the costs and frequencies of the different kind of claims. Maybe it would be too complicated but it would be interesting to see just how a premium is arrived at. The way house size and construction affects it, how different areas are rated, how occupancy (out all day, in all day) and occupants age alter the cost, for example.

I have found valuing contents a real problem in the past; costing all your clothes, books, dvds and cds, garage tools and all the other bits and pieces can be very difficult leaving the possibility of a claim being reduced if you are undervalued. My current policy now has unlimited contents (and buildings) at what I regard as a sensible premium. Takes the worry away.

I thought the tool was a good attempt at de-mystifying the arcane world of setting insurance premiums. I can now appreciate that I am paying far too much for replacing other people’s stolen goods. The text, graphics and navigation were a bit naive but perhaps justified for the target audience.

I would commend the Cooperative Insurance insurance-pricing tool to the banking industry for demonstrating and justifying how overdraft terms, interest rates and charges are determined.

John Holmes says:
19 February 2016

Well the tool may useful to some, but last year the Co-Operative Insurance whacked up my motor insurance premium by approx. 15%, that’s with 5 years NCD. I did work for the Co-Op when I first took out the policy, (I was a returnee to The CO-Operative Insurance) but we’ve been sold twice in two years and now don’t get any benefit even though still working at 1AS. This year with an extra year NCD it’s gone up 17.5% at renewal. Sorry GI, it is pure profiteering. Sainsbury’s Bank charged a lot less at this renewal, and that’s with protected NCD. We can spend our money where we choose, it’s true. I would like to have stayed with the CO-OP, but can’t justify doing so.

John Holmes says:
19 February 2016

Just to clarify, I appreciate the original article related to home insurance, but I feel that my opinion towards any insurance from the same provider would be tainted, given the above.

In the eighties, Co-op Insurance used to send out a chart to prospective customers looking for motor insurance which allowed them to calculate their own premiums. It was points-based. You looked up your age, say if you’re 21 it’s 10 points, if you’re 22 it’s 9 points; then your profession; if you’re a doctor it’s 0 points and if you’re a rock musician it’s 10 points; and so on. At the end, you add up all the points and look up a chart that mapped points to base premium. Then you deducted your no-claims discount, and you knew how much your premium was. You could then fill in a form, send it off with your cheque, and receive back by post your motor insurance certificate. Although it was a hassle compared to today’s online world, it was all 100% transparent. Today’s online quotation systems look secretive by comparison, and breed suspicion. Did you get a higher quote because you used a desktop PC instead of a phone? Would you have got a lower quote if you said you were a software engineer instead of a computer programmer? All the answers remain hidden behind the company’s firewall.

This week I had my renewal notice for my building and contents insurance from Saga. The contents part of my renewal rose from £111 to £254. I had along conversation with Saga call centre to try to find out why this cost had risen by some 130 percent. I got exactly nowhere because they could not or would not explain how this figure was arrived at. I have had experience with Saga over the years, where, the first year price of insurance is reasonable,but, on renewing the cost takes a huge hike.

Today Which? say:

“Insurers in breach of equality law, says Which?”

” We find insurers charging more to those born overseas”
10 September 2016
We believe some insurers may be in breach of the Equality Act 2010 Being born overseas can add as much as £227 to your car insurance premium, according to Which? research.”

Read more: http://www.which.co.uk/news/2016/09/insurers-in-breach-of-equality-law-says-which-451531/ – Which?

This research that generated such a worrying headline went on to say:

“In most cases, this had no effect on the premium, but for five insurers it led to an increase. These included Admiral Group insurers Admiral, Bell, Diamond and Elephant. The price differences were less than 1%, with Bell quoting the biggest increase of £6.57. However, with Hastings Direct, the premium soared from £766.92 to £994.19. ”

So, it would have been rather less worrying to say that one (out of very many) insurers charged a lot more. Given that most of us shop around for insurance – you are not forced to use a particular company – and Hastings was the most expensive anyway bar one – just avoid Hastings.

Will the Equality and Human Rights Commission, to whom Which? are reporting this “research”, regard an increase in premium (apart from Hastings) of between 0.15% and 0.8% a serious breach of discrimination law?

Insurers pick and choose who they prefer to deal with in several areas in my experience – younger drivers for example. So is that age discrimination?

I had a variety of quotes, differing widely, for a recent new car. Is there discrimination lurking there?

EU law has made it compulsory for insurers to charge the same for male and female. What if they pose different risks, according to their actuaries, based on the claims made?

I think (as I have thought before) Which? makes headlines from time to time that distort the (my) reality of the situation. Why not look at other areas where insurers differ: age (young or old), job (or not), area you live, previous claims/convictions……… As there will be significant differences in premium this useful research may highlight the best insurers to approach for a particular circumstance. I would not see it as being “discriminatory” though.