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Insurers are hiding the true cost of cover

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Businessman burning money
Profile photo of James Daley James Daley
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Are you clear about the true cost of your insurance premiums? With more insurers hiding extras like enormous excesses and hefty interest charges, it pays to be prudent.

The price you’re quoted never seems to be the price you pay when it comes to insurance these days.

When my car insurance policy came up for renewal recently, like most people, I headed to the comparison sites to find the best deal. The quote at the top of the pile looked very reasonable, but it was only when I drilled down that I discovered that the excess was enormous, and that there would be a hefty interest charge for paying by monthly instalments.

By the time I’d made these adjustments, I’d added an extra 30% onto the price, which no longer looked quite as attractive.

Worse still is the litany of charges that you could be hit with if – heaven forbid – you should ever need to inform your insurer of any changes to your policy. New research by the Which? Money team has revealed that some two-thirds of insurers now charge customers for making trivial changes to their details.

If you happen to be a customer of i-kube, for example, you’ll be hit with a fee of £55 for letting them know that you’re now married, or that you’ve moved house. And many other insurers have now started charging for renewing your policy – something that you’d think they’d be delighted to do for you for free.

The real issue here is that hidden charges prevent customers from getting the whole picture when they sign up to a policy. You might well think twice about opting for an insurer’s cheap premiums if you knew about their additional charges. Yet these are never declared at the point of sale. You only find out when it’s too late.

In my view, if insurers are to hit their customers with additional charges, they should at the very least be proportionate and transparent. Sadly, there’s a long way to go.

Comments
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Neville says:
25 September 2010

I am more worried about the excusion clauses than the cost of insurance and changed insurance broker because they could not understand that I did not want the cheapest but the fewest exclusion clauses.
The cheapest policy is too expensive if it never pays out.
Comparison sites never list exclusion clauses therefore you never know if you are comparing like for like.
One company refused to let me see the policy document before I signed up saying I had a 14 day cooling off period.
What is one supposed to do sign up to half a dozen policies to compare them all and then cancel the ones you do not want?

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richard says:
26 September 2010

Agree with Neville – I looked at comparison sites when my car insurance rose for a ‘new’ car. The apparent savings were tremendous – but my current insurance company had effectively no exclusion clauses and a “guaranteed” permanent no claims bonus rather than the “warranted” NCB – which meant that however many accidents I have my NCB remains at 75%. Whereas a warranted meant after two accidents you lose the bonus which would increase my insurance by over a £1000.a year

To reduce my premium – I renegotiated my excess from nil to £250 – but even this was waived when a police car crashed into my parked car while I was asleep. soon afterwards. Because the company decided that an accident free 55 years supported my contention the police were totally to blame and they would recover all costs from the police. The new premium is slightly more than comparison sites but I do trust them. I know my insurance company pays quickly with all support needed.

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Chris Wheal says:
27 September 2010

Which is wrong and irresponsible to encourage people to try to buy cheaper insurance. It will almost always be worse, either will less covered (greater excesses, more exclusions) or the service will be worse when needing to make changes or, worse still, make a claim.

http://www.dailyfinance.co.uk/2010/09/22/which-is-wrong-on-insurer-fees/

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James Daley says:
27 September 2010

I think Chris Wheal may have the wrong end of the stick. Which? certainly doesn’t advise people to opt for the cheapest policy. In fact, we recently introduced a new ranking system of general insurers, which encourages customers to look for the best quality policy. Our Which? Recommended Providers are companies that have high customer satisfaction scores and which also have excellent levels of cover.

Our latest research was about the extra charges that insurers have begun to hit customers with in recent years. These charges tend to be neither proportionate nor transparent. And we believe that they prevent customers from getting a true picture of the price of their policy.

We’d like to see these charges declared up front, and we’d like to see them kept in proportion to the insurers’ costs. But either way, our advice remains the same that consumers should shop around for the best value cover, which may not be the cheapest.

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Chris Wheal says:
27 September 2010

James, if you have any evidence that these charges are not declared up front report the seller to the FSA.

In your piece you say you found the charges before you bought, so they were up front. You are trying to make a scandal where none exists.

You can buy policies that allow flexibility – adding driver/riders or changing vehicle etc – but it won’t be the cheapest policy.

And suggesting that most people have enough knowledge of insurance to safely buy using and online comparison site is appalling advice. Most people need specialist advice from a broker.

Why not explain how the comparison sites work? – if a provider is not selling enough policies they need to adjust their price but they cannot just lop off a few quid without cutting out some area of cover by adding an exclusion or raising the excess. If they did they would not have been treating the people charged the higher price fairly – they interpret the rules to mean they must reduce the cover or service to charge a lower price.

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fat sam says:
27 September 2010

I wish the FSA would actually do something useful for us poor consumers by bringing in a number of standards across the insurance industry in the same way as CAT standards have worked for ISAs. For example, the FSA could introduce standards such that any company wanting to label a product as ‘Home Insurance’, or ‘Car Insurance’, or ‘Travel Insurance’ would have to adhere to certain practices. Any product not labelled as such wouldn’t have to adhere to these standards but that would be a risk for the consumer to take.

One of these practices could be the introduction of standard definitions of cover to make comparing products easier and also allow consumers to see very clearly what they may be not be covered for. E.g. a product sold as ‘Travel Insurance’ could offer ‘Lost Baggage’. The definition of what constituted ‘Lost Baggage’ or what exclusions existed could be defined as part of the standard to be used by all companies selling a product as ‘Travel Insurance’ – the only thing that would vary is the amount of cover (and in some cases the cover could be £0 indicating that this particular feature wasn’t covered). This would allow people to see easily what type of cover was offered by a particular company in the same way that you can compare bronze, silver and gold types of software product making it easier to compare like with like without having to read the small print.

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Richard Benson says:
28 September 2010

As an insurance broker, this is something that we deal with day in day out. The companies with the big marketing spend have the mantra it is all about saving money – they forget to mention that they put out “skinny” products which can leave their customers exposed to under, or no insurance. This is the true danger in DIY insurance and both Neville and Richard are spot on. Insurance is just too important to gamble with saving a few quid on – unless of course you have enough cash to self insure. Fat Sam makes a good point about “quality assurance” marks but this exists already – just use a broker. The broker will advise you what is good and what is not and at the end of the day if they get it wrong you have someone to blame, not your own milk to cry over upsetting.
Far too often we get horror tales of disappointed customers who have tried to arrange their own insurance coming back to us having had their fingers burned.
Regulations do exist to ensure that all fees are disclosed up front and are “clear, fair and not misleading” – anyone who thinks not should report the company concerned to the FSA. Ahh, but they are in “wind down” mode – but thats another story.

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Fat Sam, Glos says:
13 October 2010

The FSA are a bit of a wet organisation, I am still at a loss as to what their purpose is. I think standardised types of cover will help simplify things so that people are clear not only on what is (or more importantly, what ISN’T) covered but also to the level. Currently, it’s difficult to see what isn’t covered and that can be a real issue. I keep my existing insurance to hand as a checklist when searching for new quotes.

I do use price comparison sites, but am wary of their results. In my experience, only moneysupermarket.com displayed the full excess as opposed to just displaying the voluntary excess. But most of the well-known ones were next to useless, the meerkat one asked for hardly any info, meaning that when you selected a product you had to provide sheds loads more info to the provider.

But I’m less wary of using price comparison sites than I am of using brokers. Independent? You’re having a laugh!

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Howard G says:
19 April 2012

I am disgusted at the state of the Home Insurance market.

1) Churchill have just upped my Home Insurance renewal from £204 last year to £331 this year. Posing as a new customer, at least the same cover if not slightly better: £215. This is a morally repugnant (where have I heard that before?) and deceitful practice. I have declined to renew, and told them why.

2) Insure4Retirement (Which? Recommended Provider) quoted £183 on price comparison website. Querying on the phone whether buildings cover was what had been specified too low as default or unlimited (contradictory statements on website), I gradually uncovered a variety of restrictions and inconsistencies on their cover which culminated in a revised quote of around £450. For example, I would defy anyone to spot that my tiny dormer window caused a blanket increase in mandatory excess for storm damage to the whole roof for the whole house – and the cost to remove that restriction was eye-watering because it meant a change of insurance company. Also, they do not use the phrase ‘all risks’ but instead ‘additional accidental damage’ and lo! that included accidental damage to window & sanitaryware normally included as standard in most policies I’ve ever come across. The published Policy Condition Booklets demonstrably materially differ from what I was told over the phone (e.g. re loss of keys). Message: they sell sub-standard policies from unheard-of insurance companies to reach the top of price-comparison sites without making shortfalls clear, but when queried then sell-up to household-named policies at double or triple the lure-price.

This is shenagins of dubious propriety, and I find it deplorable.

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David Wilson says:
19 April 2012

We had esure home insurance recently, but I have now switched to Direct Line. Reason being on reading esure conditions in policy there was some wierd conditions like if have flood damage that occurs from a tap being left on this is excluded. I am a catreful person with 5+ years no claims but I also have kids. Kids do funny things like forgetting to turn a tap off. I wouldn’t want to be left uncovered for that even if it is unlikely to happen. When we got the esure renewal, of the many new clauses they were adding to the policy renewal, one was that if you leave the house for 7 days, damage from flood. burst pipes etc not covered unless water turned off at mains and a few other similar things that not every family would normally adhere to…..
When i read the direct line policy it seemed to have much less of these type of exclusions in it so i agree with many of the posters, when you go to comparison websites, the quotes might look cheap, but you really do have to read the terms and conditions of the policy to be sure that you are buying the cover that you want/need.

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