It used to be that you had to be insured to drive a car, but since 2011 you have to be insured to own one (unless you’ve a SORN). Car insurers have taken advantage of these continuous insurance rules to lock customers in by auto-renewing.
In itself auto-renewing isn’t a bad thing – continual cover is a convenience for many – and the new rules also have positive aspects. They were brought in to help cut the number of uninsured drivers and to create an insurance database so those driving without policies were easier to catch.
My problem is the the way the auto-renewal is structured. Insurers usually increase prices each year to take advantage of inertia, and their systems are set up to make it bureaucratically far more difficult than needed to switch.
And while many do successfully ditch existing firms to save cash (see our cheap car insurance guide for how to cut costs), auto-renewing effectively locks more people than necessary into their policy.
10 rules to make auto-renewing fair
I’ve been banging on about this for a while now and we put together a 10 point plan in 2012 as part of a policy discussion with the Government. I realised today I’d never published it. So as I’ve seen others starting to mutter on this recently, I thought it time to dust it out.
1. Policyholders should have the choice of opting in or opting out of auto-renewal when a policy is bought.
Issue: Policyholders are automatically auto-renewed by most insurers. While this is useful for ensuring people remain insured, it’s bad for consumer choice and competition.
Change: When getting a policy people should be given a choice about whether their renewal is opt in or opt out. In other words at renewal time, if it’s opt in, they can be automatically renewed by default. If it’s opt out, they will only be automatically renewed if they approve of the renewal at that point.
2. More info on no claims bonus (NCB) transfers should be in the auto-renewal document allowing for easier NCB transfers.
Issue: To switch insurer if you have built a no claims bonus requires proving the length of that bonus. This can be difficult and is used by existing insurers as a disincentive to switch and a way to retain existing customers.
Change: The auto-renewal quote documents should include detailed no claims bonus information that can be used, without any further reference to your current insurer, to switch – taking out a block in the system.
3. Information on last year’s premium should be prominently displayed on the auto-renewal form.
Issue: Many companies use inertia based pricing to increase policyholders premiums each year. They don’t put the previous year’s costs on insurance documents so people can’t see the rise.
Change: Insurers are compelled to notify customers of their current rate and the percentage rise when it is time to renew.
4. The reasons for any premium increases should be fully explained.
Issue: Many policyholders may find that their premium has increased at renewal yet there is no listed reasoning behind the increase.
Change: Insurers are compelled to list any material factors, which may have led to the premium increase, explaining why this affects underwriting.
5. Policyholders should be able to cancel their cover using the same method they did to sign up.
Issue: While you can buy insurance online, face-to-face, or over the phone, cancelling cover can be much more restrictive. Many of the biggest insurers don’t allow you to cancel online even though they allow you to sign up online.
Change: Insurers are compelled to allow customers to cancel in the same way they signed up – so if they signed up online, they can cancel online.
6. Policyholders should have more notice about upcoming renewals.
Issue: Policyholders currently get around 28 days to auto-renew – if it is offered – but this may not be enough to assess the marketplace properly to find a new policy.
Change: Insurers notify policyholders six weeks before renewal with a further reminder two weeks before.
7. Cancellation fees for auto-renewal should be abolished.
Issue: Policies that are auto-renewed still attract a cancellation fee if the policyholder finds a better deal elsewhere and needs to cancel the renewed one.
Change: Insurers should be prevented from charging cancellation fees on an auto-renewed policies.
8. Insurers must ask customers about changes in circumstance before issuing new quotes.
Issue: Many people are driving with invalid insurance because they were auto renewed and didn’t notify the insurer of material changes such as speeding points.
Change: Insurers must ensure that they have all the updated information. The customer needs to actively verify this.
For opt in auto-renewal, this will ideally be before the renewal, but can be up to three months after. If there is no verification the insurer needs to formally contact the individual to suspend the insurance.
For opt out auto-renewal the verification would be part of the sign up process.
9. Insurers should not be able to take policyholders’ money before renewal.
Issue: Some insurance companies, including Swinton, take money from the accounts of their policyholders who pay by monthly direct debit, ahead of renewal as a deposit. Many policyholders are not aware that this will happen.
Change: Insurers are barred from using this practice.
10. Renewal fees should be abolished.
Issue: A limited number of smaller insurers charge policyholders if they decide to auto-renew. The fee can be as high as £50.
Change: Insurers should be barred from using this practice.
Also, back in 2012 at the time we were doing this policy work, we ran a site poll on your views of auto-renewing. 10,500 voted and the results are telling…
- Ban all auto renewals – 3,914 votes (37 %)
- Allow auto renewing only if premium not increase – 2,198 votes (21 %)
- Allow auto renewing – 211 votes (2 %)
- Auto renewing allowed only if people opt in – 2,930 votes (28 %)
- Auto renewing allowed but must offer an opt out – 1,273 votes (12 %)
I’d love to know what you think of the ten points; whether you agree or disagree, if there are any you’d add that we’ve missed, and your auto-renewing experiences.