Motor insurance auto-renewals February 25th 2015
The 1.3bn annual cost to UK drivers
MoneySuperMarket
Motor insurance auto-renewals
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Insurance is the classic distress purchase. No one wants to buy it, but most of us recognise that we need it just in case. So we trust it to help us out when required. And we trust insurance companies to play fair both when selling us a policy, and when that policy comes up for renewal.
But as this report lays bare, the practice of automatically renewing car insurance policies known as auto-renewal is far from fair and reduces effective competition.
Often people have no idea that theyre agreeing to auto-renewal when they first buy their insurance policy, and would have no way of opting out even if they did. When renewal time comes around, the letter or email they get from their insurer can be confusing and misleading, and even bury significant changes to their policy in the small print. If you dont want to renew your policy, cancelling can prove difficult.
This might not matter if auto-renewing didnt cost us, individually and as a nation, so much. With an average saving of at least 113 if someone hasnt switched for a couple of years, most people are better off not letting their insurance policy roll-over automatically. And the over-55s, those with less money, and people not on the internet suffer more than most.
As a country, we spend over 1.3billion more than we need to just because so many car insurance policies renew automatically thats money many cant afford to waste.
The insurance industry can be a force for good employing thousands of people across the country and coming to the rescue when the worst has happened.
But when it comes to auto-renewal, it needs to rediscover its purpose, to provide much-needed piece of mind to customers.
Our Eight Point Plan sets out how. Its straightforward, simple, and fair.
I want to challenge the industry to adopt this plan and put itself back on the side of its customers.
Peter PlumbChief Executive, MoneySuperMarket
Foreword
Motor insurance auto-renewals
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Executive summary
An overview of auto-renewals
How auto-renewal is harming UK consumers
Recommendations: Our challenge to the motor industry
Conclusion
Contents
Motor insurance auto-renewals
MoneySuperMarket
Almost a quarter (23%) of all UK motor insurance policies are automatically renewed every year without consumers checking a single other quote
Drivers who allow their policies to be auto-renewed are collectively over-paying on their motor insurance by 1.3 billion every year
Older people, those on low incomes and those who dont have internet access are most likely to be adversely affected by auto-renewal
MoneySuperMarket is challenging the insurance industry to adopt eight simple best practice recommendations to address the current failings in the auto-renewal process
Executive Summary
This report provides an analysis of the widespread practice of the UK motor insurance industry of automatically renewing motor insurance policies at the end of their annual term, commonly known as auto-renewal.
It is based on a review of insurance renewal notices issued to UK consumers in 2014, quantitative and qualitative research carried out by Ipsos Mori and You Gov, and anonymised data from MoneySuperMarkets motor insurance site. All sources are referenced.
The report finds that the use of auto-renewal does benefit drivers by ensuring that they dont end up accidentally uninsured when their existing policy expires and that they meet the legal requirement, introduced in 2011, to be insured at all times.
However, it also finds that, in many cases, drivers are not aware that they are giving consent to be auto-renewed when they first take out their policy, that renewal notices are at best unclear, sometimes burying significant policy changes in the small print, and that cancelling an auto-renewed policy can be difficult and costly.
The findings raise questions over whether the widespread practice of auto-renewal is the most effective way to ensure motorists are not accidently left uninsured and whether the insurance industry can adopt other practices to warn customers of their obligation to be insured.
The scale of those adversely affected is sizeable. Almost 6 million policies - 23% of all UK motor insurance policies - are now automatically renewed every year without consumers checking a single other quote.
Motor insurance auto-renewals
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Drivers who allow their
policies to be auto-renewed
are collectively over-paying
on their car insurance by
1.3billion every year
MoneySuperMarket
There is a financial cost to auto-renewal. Our research shows that consumers who shop around instead of allowing their policies to be auto-renewed can make considerable savings. Drivers who allow their policies to be auto-renewed are collectively over-paying on their car insurance by 1.3billion every year.
Consumer research for this report found that a large numbers of drivers have concerns about auto-renewal. In a poll conducted by YouGov, over two-thirds (68%) of consumers said that they see auto-renewals as a bad thing because customers can be locked into a policy for another year without giving explicit consent, while 62% felt auto-renewals deterred consumers from shopping around for a cheaper quote.
The research found that for some consumers, auto-renewal means that they have paid for two insurance policies, having bought a new policy without realising their existing policy had been auto-renewed.
In other cases, a lack of clarity in auto-renewal notices has meant that important changes in circumstances points on a licence or modifications to a vehicle, for example have not been reported to an insurer for far longer than otherwise would have been the case, leaving the policy holder under-insured or even uninsured.
Further research by Ipsos Mori confirmed what has been suspected for some time: groups such as older people, those on low incomes and those who dont have internet access are most likely to be adversely affected by auto-renewal. For example, over 55s are significantly more likely than the younger age groups to auto-renew for numerous consecutive years: 40%
MoneySuperMarket
of over 55s who did not change providers last time their insurance came up for renewal had not changed providers for five or more years.
To address the current failings in the auto-renewal process, and to tilt the balance of fairness back towards the consumer, the report challenges the insurance industry to adopt eight simple best practice recommendations.
These eight recommendations, would remove some of the most negative impacts of auto-renewal in the motor insurance industry, turning auto-renewal back into a benefit for consumers. We want to put consumers back in control of their insurance cover and the insurance payments that are automatically taken from their bank or credit account.
Auto-Renewal Report 2015
Consumers should be clearly asked whether they want to opt-in to auto-renewal when first buying their policy
Cancelling auto-renewal should be really simple to do when people receive their renewal notice. Such as a click-through button on emails or a simple cancellation form sent with the letter
Last years policy price should be displayed clearly on your renewal notice, next to the new price
Any significant changes to policies such as the imposition of a larger excess or removal of breakdown cover should be clearly displayed on renewal notices
Renewal quotes should clearly include proof of any No Claims Bonus, to enable easy switching to alternative policies Renewal notices should prominently warn customers they must inform their insurer of any changes in their circumstances, such as a new address, change in job, annual mileage or points on their licence
Renewal notices should be in plain English
People must be prominently told about the cooling off period, during which it should be free to cancel
Eight best practice recommendations
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MoneySuperMarket
Overview of auto-renewalsBackground to auto-renewals
Continuous Payment Authorities (CPAs) are now used in almost all motor insurance contracts. This allows insurance companies to take money from a customers bank account to automatically renew a policy when it expires, without any further explicit agreement of the customer. When consumers sign up for motor insurance they are now no longer signing up to a years cover, but rather for a rolling policy that will renew every year until the holder cancels.
The practice of auto-renewals does help ensure that drivers dont end up accidentally driving without insurance and committing an offence . To address the problem of uninsured drivers on the road, the Road Safety Act 2006 introduced a new offence of
