The renewal quote isn't the one to beat

You've probably seen insurance ads offering to 'beat the renewal quote.' But you can do a lot better than that.

‘Get £50 when you buy combined buildings and contents insurance' screams Halifax. 

‘10% off your car insurance when you buy online' says Churchill.

'Guaranteed to beat your existing car insurance written renewal quote by at least 10%' pledges First Direct.

These kinds of messages are commonplace in insurers’ adverts but is it time to look beyond the marketing hype?

Beyond the hype

Insurers that promise to beat your renewal quote are nothing new, especially when it comes to car insurance.

Trouble is, the renewal quote isn't the one to beat. Insurers generally pull out all the stops to lure in new customers and the first year you’re with them they’ll often offer you a bargain. However they then rely on apathy kicking in, and will usually increase your premium the following year -- even if you haven’t made a claim -- and hope you can’t be bothered switching companies when the renewal notice arrives.

When you start shopping around, you’ll often find that rival insurers will offer you cheaper insurance. Unfortunately it’s not these competitor quotes that other insurers, such as First Direct, are offering to beat, it’s just the inflated renewal quote from your existing insurer.

Alternatively, take Halifax’s offer of a £50 discount on buildings and contents cover bought together online. It sounds great but when you look around pretty much all insurers offer discounts for buildings and contents cover bought jointly, and also for policies purchased online.

For example, Sainsbury’s Bank offers a 15% discount on combined buildings and contents policies, ING offers an even bigger 45% discount if you buy combined buildings and contents insurance online, and Nationwide gives you 100 days free if you buy buildings and contents cover together and a further 20 days free if you buy online.

But with discounts being banded about so freely, you have to question whether the premiums on offer were any good to start with? Or were they simply overpriced?

Fixed premiums

Some insurers have also been known to offer to fix your premiums for a certain amount of time. A couple of years ago, HSBC was giving its mortgage customers the chance to fix their home insurance premiums for five years. Although this may sound tempting, let’s look at the facts and figures.

A quick trawl of some price comparison sites suggests that HSBC is not particularly competitive for home insurance. Covering the contents of my flat with HSBC would set me back £254.84 a year, more than twice the cheapest quote which was £108.49. So supposing I was a HSBC mortgage customer and I’d chosen to fix my premium for five years, I would have paid a total of £1274.20 over five years. If I’d gone with the cheapest quote and paid the same premium for five years I’d have paid £542.45. Even if the cheapest quote doubled from year two onwards I’d still be quids in.

Another point to consider is that if you don’t make any claims on your home insurance, you generally benefit from a no claims discount in future years. But by fixing premiums for future years, householders will be missing out on this discount.

So what should consumers do when they’re looking for a new insurance policy? My advice is simple: don’t fall for cheap marketing tricks. Use a comparison service such as the lovemoney.com home insurance service to compare what you’ll actually pay with each insurer after online and other discounts have been taken into account. And when your policy is due for renewal, don’t naively think your insurance company will reward your loyalty with a cheaper premium. It won’t. So be prepared to ditch and switch.

This is a classic article that has recently been updated.

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