Insurance policy tweaks cost drivers dear

A new investigation from uSwitch.com, the independent price comparison and switching service, reveals that motorists are being charged an average fee of £22 just for amending simple details on their car insurance policy. With 14 million people requesting changes to their policies each year, the insurance industry is scooping a massive £333 million from these charges.

Consumers are charged admin fees - or mid-term adjustment fees as they are known in the industry - for simple amendments to their policies such as changes to their name, address and vehicle details. Failing to amend policies could result in invalid insurance when it comes to making a claim. There are also fees for requesting duplicate documents and cancelling a policy. The uSwitch.com research reveals that these fees differ massively across the industry from free to an unlimited proportion of a customer’s premium. In light of this, uSwitch.com calls for regulation to be put in place in order to protect consumers from these varying charges.

Until 5th January 2008, section 2.10 of the ICOB (Insurance Code of Business) focussed on ‘Excessive charges to retail customers’. However, on the 6th January 2008, the ICOB was updated to the ICOBS (Insurance Code of Business Sourcebook) and section 2.10 was removed to ‘simplify’ the rules. According to the FSA, the rule is no longer required as they have never needed to investigate a company for excessive charges. However, uSwitch.com reveals that this removal of section 2.10 means there is currently no regulation in place to control the amount of money the insurance industry can levy for fees and charges. uSwitch.com calls for the FSA to reinstate section 2.10.

Ashton Berkhauer, Insurance Expert at uSwitch.com comments: “Consumers need to know where they stand and the easiest way to do this is for the amount providers charge to be consistent across the insurance industry. This would make it clearer for consumers and bring transparency to the market. Currently, making an adjustment to your policy can cost you from £0 to £25 and the price for cancelling a policy mid-term can be unlimited.”

Admin Fees

On average, consumers are charged around £17 to amend details on their policy and £12 to receive a duplicate copy. They face the highest charges if they decide to cancel their policy before it comes to an end, with some providers charging up to £75 if motorists cancel a policy after 14 days of receiving the policy documentation. Prudential, Churchill, and Direct Line charge customers a cancellation fee based on their individual policies, calculated as a percentage of the customer’s remaining premium.

Premium costs

Many motorists will be unaware that by making changes to their car insurance policy after it has been set up, they may not only be hit with a fee, but may end up paying a higher premium too. This is not unreasonable, as insurers have to price policies according to driver’s risk. Over half of motorists (53%) who made a mid-term adjustment to their policy have also seen a change in their premium, with one in three paying an additional £39 on average. By raising premiums following a mid-term adjustment, the insurance industry is making £584 million a year.

However, this is not always the case. An amendment may result in premiums staying the same, or if the risk profile of the customer doesn’t change, decrease the policy. The uSwitch.com research found that 1.7 million people actually got some money back after making a mid-term adjustment.

Ashton Berkhauer concludes: “Not all changes are costly - drivers may find that, by making certain mid-term adjustments, the risk is improved and the premium decreases, saving them money. It’s always worth having a conversation with your insurer as some are willing to waive these fees or will at least be open to negotiation. The worst course of action is to do nothing at all - inaccurate details on the policy could make it invalid, leaving you without a leg to stand on if you come to claim.”

“However, without any regulation existing in the market around fees, the insurance industry can charge what they like. It is vital that consumers are made aware of these fees and that the insurance industry is made to review and justify their validity. There is an obvious need for the FSA to act fast as the ICOBS was updated in order to add ‘detailed rules and guidance’ to protect consumers. These ‘hidden charges’ and cancellation fees certainly seem excessive and there is a clear need to reinstate the rules around what is a fair charge to really put consumers needs first."