Insurance renewals: why can't insurers be honest?

Insurers are failing to show customers what they've been paying, despite repeated warnings from the regulator.

Sorting out insurance policies has historically been my least favourite financial task.

One of the main reasons I’ve found it a chore in the past has been that when the renewal quote came through from the home or car insurer, it didn’t tell me what I had paid the year before. As a result I had to go back through my files to find out what the previous year cost me, in order to get a decent idea of what sort of increase I faced  if I opted to renew.

That has all changed now though, with the Financial Conduct Authority (FCA) introducing new rules around transparency in insurance renewal documents in March 2017. These rules pushed insurers to prominently display the details of what you paid last time around, as well as push you to shop around to ensure you get the best possible deal.

The trouble is that these new rules are not working anywhere near as effectively as they should be.

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Failing to notice last year’s details

A new study from GoCompare found that less than half (46%)  of motorists have noticed last year’s premium price on their renewal letters.

It reported that around 46% of drivers had spotted last year’s price on the document, meaning they were in a more informed position about how the renewal quote compared.

Now, this actually represents something of an improvement - back in February, the last time the firm carried out this study, just 38% noticed last year’s price on the letter.

But it is still a pretty staggeringly low level isn’t it?

Dragging their feet

The problem is that some insurers are not responding to the FCA’s instructions as they should be.

Back in April, the FCA announced that insurers were still failing to properly implement the right transparency measures, a full year after the regulator had outlined its new rules around displaying last year’s premium alongside the renewal quote.

It had already noted in October 2017 that too many insurers were failing to meet the rules, and clearly progress from that point on has been rather slow.

Two of the key ways in which insurers are still missing the mark are in mis-stating the previous year’s premium, or in failing to display it in a prominent way which will draw your attention when reading the letter.

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Why transparency matters

Insurers offer their best pricing to new customers. It’s a way to get them in the door - they know that nobody actually enjoys shopping around for insurance, particularly if that then involves moving to a new insurer, so they rely on your apathy in future years.

Then each year, even though your circumstances probably haven’t changed, the price of your insurance gets ratcheted up.

If you keep good records, then when renewal time comes you can go through your old documents to work out what you paid the year before and what sort of price rise your insurer has proposed.

But many of us don’t bother with that, simply signing on the dotted line for another year. A study by Confused.com found of those who took out car insurance between April and June this year, more than half (58%) stuck with the same insurer, paying an average of £49 a year more as a result.

We can’t trust insurers to do this themselves

It’s more than a little troubling that a year and a half after the introduction of these rules, insurers still aren’t willing or able to help their customers make a more informed decision about whether to renew or not.

How difficult can it be to openly display what the policy will cost for the coming year, and how that compared to the year before? It’s obvious why some insurers are happy to drag their feet on this - they want to continue to ramp up the renewal prices, and hope the customers don’t notice and renew anyway.

But if we reach the stage where insurers continue to flagrantly ignore their responsibilities, then perhaps we need to take it out of their hands. Perhaps we need the FCA to implement a standardised renewal document that all insurers must use - no ifs or buts - when sending out to existing customers.

At least if we had a standardised format, we’d know that this crucial detail was being displayed properly and customers would see clearly what price increase they were being offered.

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