Car insurance renewal: last year's premium figure had gone up and I didn't know why

It turns out car insurance renewal quotes can still be misleading despite the recent FCA crackdown. My recent experience shows just how much room for improvement there is.

Insurers must show the price you paid on your car insurance last year along with your proposed renewal quote, according to the Financial Conduct Authority (FCA).

These new rules were introduced last year with the aim of making insurance price hikes easier to spot and to encourage more of us to shop around.

All good stuff from a customer's point of view, but what happens when the price shown for last year is far more than you actually paid?

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Confused by my renewal quote

I’ve just had my car insurance renewal offer from Sheilas’ Wheels.   

At first glance, the renewal quote was nearly £10 cheaper than last year’s price, which in the world of insurance renewals is often a rare thing.

But alarm bells started ringing as last year’s figure looked to be far more than I’d paid.

My previous premium was listed as £253.91, so I dug out my credit card statement and there it was, in black and white: I’d actually paid them £173 last year.  

Why the £80 difference?

My insurer struggled to explain it  

I rang my insurer and chose the ‘discuss my quote’ option.

The chap on the phone was friendly and tried to help, but despite 'checking with a colleague’ seemed at a loss to explain where last year's figure of £253 had come from.

Finally he suggested it could be because I’d made a change to my policy during the year. 

This was true as nine months into my policy I’d bought another car, and when I rang to tell them, they recalculated the price for the remaining three months which cost me £20. 

But even factoring that in, the total price I’d paid last year would come in at £193; still far short of the £253 mark they were quoting.

After several minutes of questioning (by me), the man at Sheilas’ Wheels admitted the £253 figure “didn’t sound right” and offered the advice that I shouldn’t get “too hung up” on last year’s premium and suggested it could be a typo.

It’s all in the detail…

Still puzzled, I took another look and on closer inspection the wording on my renewal quote read:

“Your premium last year was £253.91, including any optional extras and excluding interest. This takes into account any changes you may have made since you took out the policy and shows what the full year’s premium would have been if these changes had been in place from your cover start date”.

So instead of including the price I’d paid for last year’s cover, Sheila’s Wheels had done the sums again and put down the price of a full year’s cover, based on my newer car, which I’d only had for the last three months of my policy.

I called its press office, and a spokesperson was clear on this point.

“If the customer has changed car, the premium shown for the previous year is the premium they would have paid last year for the full year, based on the details on the policy now”.

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Can insurers do this?

The Financial Conduct Authority has named and shamed companies who it feels aren’t sticking to the rules in the past.

Admiral came under the spotlight when the FCA found it had included “inaccurate premium amounts in renewal documents to some customers” by publishing last year’s quoted premium "before discounts were applied, rather than what the customer actually paid”.

And more recently the RAC has had to get back in touch with customers after the FCA found it had been “failing to display the prior and current year premiums”.

According to the FCA, insurers should “disclose last year’s premium at each renewal, so that it can be easily compared to the new premium offered”.

Seems pretty clear as surely last year’s premium is the price you paid?

However, after trawling the FCA website and asking them for more clarification on this, its answer proved more complicated.

“Where one or more mid-term changes were made to the policy which the firm proposes to renew, an amount calculated by annualising, (or otherwise adjusting as appropriate to the duration of the proposed policy), the premium in effect following the most recent mid-term change, excluding all fees or charges associated with those mid-term changes”.

In a nutshell, this means if you make a change to your policy during the year, say changing your car, then last year's premium doesn’t have to be the price you paid, but can be adjusted to reflect the price you would have paid if you’d made the change when you took out the policy.

While the FCA’s aim is for greater transparency, doesn’t this option for insurers rather muddy the waters and create confusion for customers?

“This could be very misleading for consumers if they don’t understand the logic that’s being applied”, says James Billingham, chief technology officer at pay-as-you-go car insurer, Cuvva.

“When it comes to the ‘last year’s price’, I think it’s got to be very clear what numbers are being used and there needs to be some kind of caveat to explain why the price listed may not be the one you paid”.

So I finally got down to why my insurance renewal quote looked the way it did. But this took calls to my insurer customer service, its press office (something most people obviously can't do) and the regulator.

Insurers clearly have a long way to go before these quotes are straightforward, not misleading and easy to understand for the customer.

Need help getting car insurance? Have a read of How to pick a car insurance policy