The automatic renewal of insurance policies can cost households hundreds of pounds each year. Mansell Purdy, an insurance comparison expert at Quotezone.co.uk, one of the UK’s leading insurance comparison websites, explains the issue and the ways policyholders can look to make savings.
Your time is at a premium; there’s work, family and a hundred and one things to do around the house. Auto-renewals might seem like a small bonus, you don’t have to do anything to ensure you’re covered for another year and surely your loyalty is repaid?
It’s a fair assumption. However, a report by the Citizens Advice Bureau in 2018 illustrated that loyalty doesn’t always pay: the average household is being overcharged by £877 a year – about 3% of its annual household budget – because it sticks with the same providers for insurance and other services such as mobile contracts.
In fact, the Financial Conduct Authority (FCA) estimates that around six million insurance policyholders are not getting a good deal on their insurance, and if they all switched they could collectively save around £1.2 billion a year.
The Competition and Markets Authority is taking the issue seriously, initially giving regulators such as the FCA six months to come up with recommendations. The FCA’s initial report suggested firms engage with customers to give them information about alternative deals and automatically switch those paying high prices to cheaper products providing equivalent cover.
However, the pandemic has slowed down follow-up proposals and actions, so for the time being it’s up to policyholders to compare policies themselves if they want to find cheaper insurance.
Why insurance firms auto-renew policies
Many car insurance providers in the UK auto-renew their policies unless the policyholder opts out of the renewal, and in many ways it’s actually in the policyholder’s own interests for them to do this, because it ensures the motorist will never run the risk of driving without insurance.
While renewal quotes are often higher than the introductory rate motorists might have received in their first year, if a policyholder forgot to renew their insurance the penalty they would face for driving without insurance would prove much more costly than the higher renewal quote.
For example, the fine for driving without Insurance ranges from £300 up to an unlimited amount, depending on whether the case goes to court, and the motorist will also receive six penalty points on their licence, which will in turn push future premiums up. If the case went to court there’s also the risk the driver might be disqualified from driving.
Of course, even though auto-renewal can help drivers stay on the right side of the law the higher renewal quotes can sometimes be a bitter pill to swallow. Insurance providers often offer policyholders a discounted introductory rate in their first year, which is why subsequent renewal quotes can feel so costly.
Beyond car insurance, some insurance policies that aren’t legally required might also auto-renew at the end of the term, such as home insurance, pet insurance and even annual travel insurance.
No matter what type of insurance you need though, it’s always a good idea to shop around for the best quotes rather than automatically accepting this renewal quote.
Many still unaware of the benefits of shopping around
Even though many insurance policies include a clause that allows the insurance provider to automatically renew the policy unless the policyholder opts out of the renewal, there is never an obligation to stick with any one provider and indeed 35% of respondents – for both home and motor insurance – reported to the FCA that they had switched their policy.
This leaves 65% of policyholders who demonstrated an unwillingness to move from their existing insurance provider, either because they are unaware that they aren’t obliged to accept that provider’s renewal quote, or simply because they are unaware of the potential benefits of shopping around.
5 tips for keeping the same cover for less spend
The Department for Work and Pensions’ Family Resources Survey found that 16% of UK households in 2018 would like to have contents insurance but cannot afford to do so. It’s fair to say the country’s economic situation has worsened since then, which means we’ll all be looking at our outgoings more closely.
So, what should you bear in mind if you’re keen to save on your insurance outgoings without compromising the protection you enjoy?
- It’s a highly competitive market – The FCA points out that over half of motor and home insurance consumers don’t appreciate this. You’re not tied to any provider and should consider the options you have. You’re in a position of power.
- It pays to negotiate – The FCA found that just 25% of respondents taking out home insurance and 31% taking out motor insurance said that they contacted their providers and tried to negotiate a lower price. 60% of these policyholders indicated that they succeeded – and for the same level of cover and excess.
- It’s easy to shop around for the best deals – Shopping around doesn’t have to be difficult. Price comparison websites such as Quotezone.co.uk are a quick and easy way to compare policies from hundreds of providers in a matter of minutes.
- Your timing matters – When it comes to renewing your insurance timing can make all the difference. The best time to renew is usually around three weeks before your existing policy expires, because around that time there is usually a definite dip in quoted premiums.
Of course, price isn’t the only deciding factor, and you might have good reasons for sticking with a provider even if they aren’t the cheapest. For instance, many people like the reassurance of remaining with well-known or award-winning brands. And don’t underestimate the power of great customer service – people who have positive experiences and feel looked after are likely to bear that in mind when it comes time to renew.
However, even if you aren’t planning to switch it still makes sense to compare policies from a range of different providers, because when you’re armed with all the right information you’re more likely to get the right policy at a fair price.
Mansell Purdy is an insurance comparison expert at Quotezone.co.uk, one of the UK’s leading insurance comparison websites. Launched in 2005, Quotezone.co.uk now helps millions of people find better deals on their insurance each year.
This article is intended as generic information only and is not intended to apply to anybody’s specific circumstances, demands or needs. The views expressed are not intended to provide any financial service or to give any recommendation or advice. Products and services are only mentioned for illustrative rather than promotional purposes.