The cost of accepting your current motor insurer’s renewal price has soared – and the numbers of drivers who choose to shop around is expected also to rise sharply as a result.
Sometimes it's better if you say goodbye
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Motorists are effectively being penalised for sticking with their current insurer – and those penalties are increasing in size, new research has found.
Providers have always tended to reserve their best prices for new customers.
Loyalty doesn’t pay
But new findings from analyst Consumer Intelligence show that the average price increases faced by policyholders who accept their insurer’s renewal quote are substantially greater than a year ago.
The firm says that the typical “reward” for drivers who decide to stick with their existing insurer is a £22 hike in premiums.
This represents a 100% increase on 2015, when the standard renewal price rise was £11.
As a consequence, Consumer Intelligence expects to see a surge in the number of motorists who shop around for the best possible deal on cover.
‘Drivers making sensible decision’
Ian Hughes, the company’s chief executive, said: “The message on rising car insurance premiums is really hitting home, and drivers are making the sensible decision to look around for the best possible deal.
“We are seeing a real acceleration in shopping around and up to 11 million of the UK’s 27 million private car owners will move this year.”
Hughes added that a recent change in the rules on renewals meant that more people were being prompted to switch provider, or at least check whether a better deal was available.
He said: “Customers really should be shopping around, which is being made easier as insurers need to make it clear what last year’s premium was when they send renewals.”
Armed with more information
Until recently, insurers had generally not given customers information about the extent to which their premiums were rising at renewal.
But regulators and consumer groups thought that many people had simply – and wrongly – expected their provider to offer them a fair rate.
As a result, too few motorists compared prices when the opportunity arose.
It has long been viewed as a part of many insurers’ business model to tempt new customers with low prices and discounts, but then bolster profits by imposing sharp renewal hikes.
Customer inertia has been an integral part of this strategy – but it is hoped that greater transparency with regard to renewal notices could help fight this inertia.
A second tax increase
Consumer Intelligence said that this year’s price increases were driven in part by recent hikes in insurance premium tax, which was raised to 9.5% from 6% last autumn.
In March’s Budget, Chancellor George Osborne said there would be a further increase in the tax to 10% in October.
Average premiums are up by 13% over the past 12 months, Consumer Intelligence said, to £683.
Drivers over the age of 50 had seen disproportionately large increases of 15.3% since this time last year, compared with a typical rise of just 9.3% for the under-25s.
However, these figures hid the fact that premiums for older drivers were much lower to start with: currently, over 50s pay less than £300 a year as opposed to in excess of £1,600 for the under 25s.
‘Prices rising at steady pace’
Consumer Intelligence’s research echoes the findings of the latest Confused.com car insurance price index, which was published last month.
The index found that prices barely increased in the first three months of 2016, but Confused.com’s head of data services Steve Fletcher warned:
“Insurance prices have been rising at a steady pace for the last 21 months, and the last few months are unlikely to be indicators of a period of stagnation.
“With this in mind - and with the cost of motoring showing signs of increasing again - it’s all the more important that drivers find the cover they need at best price possible.”