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Is car insurance renewal set to become more transparent?


One of the UK’s leading motor insurers is now showing customers how much their premiums are rising when they come to renewal. Will others follow suit?

Man in suit

Britain’s car insurers may be slowly coming round to the idea that they should give their customers a fairer deal when it comes to renewals.

Last month, Axa became the first UK provider to automatically include the previous year’s premium on the letters it sends customers when a policy is about to expire.

Money-making scheme

Renewals are thought to be one of the main ways insurers make money: the majority of customers simply accept their renewal quote and sign up for another year’s cover.

This is despite the fact that the new premium can often be significantly higher than the previous year’s – and for no good reason.

Campaigners have long called on insurers to be forced to show customers exactly what price increase they are facing so as to encourage them to shop around for a better deal.

Industry body the Association of British Insurers last year set out plans to include previous premiums in renewal notices.

Action needed

But it will take formal action by City watchdog the Financial Conduct Authority (FCA) to ensure that all firms adopt this practice.

Axa said that, as part of plans to "challenge and change the traditional perceptions of the insurance industry", it would acknowledge feedback suggesting it would be useful to show current premiums on renewal quotes.

The policy will apply not just to motor policies but also home insurance and business cover.

Axa spokesman Yves Masson says: "We talk to our customers on a regular basis to find out what they want and this helps us to understand what makes them tick and how we can better meet their needs."

'Long campaign'

toy car on money

Consumer organisation Which? has welcomed the news.

Executive director Richard Lloyd says: "We have long campaigned for insurers to put last year's premium on the renewal so we welcome Axa starting to do this for their customers."

Lloyd added that Which? wants the FCA to force all insurers to follow suit.

Some insurers already show customers their current premiums if they use an online account or smartphone app to administer their insurance.

Misguided loyalty

But Axa is the first to introduce this level of transparency on all renewals.

So why can renewing with the same provider result in such a bad deal?

The answer lies in consumer inertia and particularly in the view of many people that by staying loyal to a company and remaining a customer for many years they will get better rates.

In reality, this is rarely the case.

Best rates for new customers

Typically, insurers offer cheaper rates to new customers who may be enticed by advertising campaigns or who find these better deals on price-comparison sites.

But having got a decent initial rate, many people simply stick with the same firm when their policy comes up to renewal despite the fact that the cost in the second year may be significantly higher.

This means insurers can bump up year-two prices and boost profits safe in the knowledge that most customers will stay put.

In some cases, policyholders do not realise that their renewal premiums have risen.

Check your quote is fair

Alternatively, they may think that the higher costs simply reflect increased prices across the industry.

But the only way to be sure that a renewal quote is a decent price is to shop around and see what premiums other insurers will charge you.

There are genuine reasons why a renewal quote could be significantly higher than the previous year.

For example, if you have made any sort of claim – even if you were not at fault – then you can expect to pay more for cover in subsequent years.

Similarly if your personal circumstances have changed this could trigger a rise in premiums.

You may have moved to a postcode where car crime is more common, or switched to a job which insurers associate with a higher risk of claims.

Nonetheless, it is still worth shopping around for the best possible quote as not all providers treat changing circumstances such as these in the same way.


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