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Money grab: Many victims of this great insurance betrayal are elderly, trusting, not as financially savvy as others in terms of challenging companies over premiums
The Mail on Sunday today calls for an urgent inquiry into the insurance market by the City watchdog after we uncovered evidence of a shocking betrayal of loyal customers. New rules designed to ensure customers are no longer exploited are still not working six months after they were put in place by the Financial Conduct Authority, this newspaper believes.
A major investigation into the pricing of motor and home insurance policies by The Mail on Sunday shows that existing customers are still being hit by huge price hikes by some of the country's biggest financial brands.
Many victims of this great insurance betrayal are elderly, trusting, not as financially savvy as others in terms of challenging companies over premiums – and are fighting a cost-of-living crisis that is testing the robustness of their household finances. Some are receiving premium renewal notices telling them of double-digit percentage increases in the price.
This great insurance betrayal is despite a promise made by the regulator earlier this year to stamp out bad practice in the industry. It said its new rules would save loyal customers more than £4billion in premiums over the next ten years. This would be achieved by ending the practice whereby existing customers pay a higher premium than a new customer would pay for the same policy.
On Friday, the Financial Conduct Authority continued to argue that its reform of the industry was having a 'broadly positive effect' on consumers. But its view was vehemently countered by consumer champion James Daley, a longstanding critic of the new rules. He told The Mail on Sunday that the main result of the reforms was 'a bunch of premium hikes'.
The Mail on Sunday's investigation supports Daley's view. Our study into the murky world of insurance indicates that the new rules are not working – and are to the widespread detriment of consumers. Specifically, we found:
The results of our investigation are worrying because they suggest that nearly six months into the new pricing regime, insurance companies are still fleecing existing customers, many of them longstanding policyholders who mistakenly believe their provider will do the right thing by them.
Despite the right to stop insurers selling policies if they are breaking the rules – and to discipline individual insurance executives – the FCA has yet to take any action.
Early this year, The Mail on Sunday carried out a similar probe into the insurance industry – just as the new rules started to bite. At the time, we revealed that insurers had 'unleashed a wave of industry-wide price increases' – with those most impacted being the very people the regulator said its rules would protect (loyal customers).
Then, we acknowledged (albeit with a dollop of scepticism) the views of insurers and the regulator that the rules might take time to bed down. Yet, nearly six months on, it appears that very little has changed. For many, premiums are rising and remaining loyal to an insurer still does not make financial sense.
Under the new pricing regime for motor and home insurance, new and existing customers are meant to be treated as equals. 'Price walking' – existing customers being discriminated against – should be a thing of the past, as should the offer of cut-price insurance to new customers to increase new business sales.
Yet our investigations suggest otherwise. Patrick Brant's experience indicates that price walking still exists. When Pat's motor insurance with Hastings Direct came up for renewal this month, he was shocked to see that the new annual premium to cover his Nissan Qashqai would be 27 per cent higher than last year at £391.45. Pat, a former divisional director at Royal Mail, immediately got on to Hastings and challenged the increase.
After two calls to the insurer, he was able to get them to reduce the renewal premium to £369, still a 22 per cent increase on last year. Still not satisfied, Pat visited Hastings' website to see what premium he would be offered if he put in the same details, but as a new customer. The premium offered was £342, almost £50 less than his initial renewal quote. The new FCA rules require the likes of Hastings to offer the same premiums to new and existing customers with identical cover. Yet as an existing customer, he was initially offered £391 – as a new customer, £342.
Pat, who lives in Aylesbury, Buckinghamshire, with wife Janet, has now jumped ship to Beam, an AA insurance brand, paying £317 for the same comprehensive cover Hastings wanted to charge him £391 – a saving of £74. He says: 'My view is that insurers are making a joke of these new rules – and there seems to be no enforcement of them. I don't think anything has changed.'
He adds: 'As far as consumers are concerned, they should challenge any hefty premium increase that their existing insurer wants to impose on them. And if still unhappy, shop round.'
On Friday, Hastings insisted that since the start of the year, 'all of our renewal prices are the same or better than our new-business prices'. It said Pat's 'new customer' quote was lower because it did not account for a windscreen claim in 2018. It added: 'We always encourage our customers to shop around at renewal.'
Other customers have copied what Pat did and also obtained cheaper quotes as new customers – or received discounts for haggling. For example, Margaret Armitage, from Tunbridge Wells in Kent, was told her car insurance premium with Saga would be increasing this month from £302 to more than £510 – a jump of nearly 69 per cent. She drives a Vauxhall Corsa and does less than 3,000 miles a year. Margaret, in her early 80s, rang the company to complain about the price hike. She got nowhere. 'I'm a big fan of Saga and have gone on Saga holidays, but I was annoyed, especially when it said it could do nothing to cut the premium I had been offered,' she says.
She then put her insurance details into a comparison website and came up with cover from Saga as a new customer for £394 – a saving of £116 on her renewal quote. She couldn't believe it, although she opted for an even cheaper deal from AA at £273. On Friday, Saga insisted Margaret's renewal price was 'fair and accurate'. It said the increase was down to 'several factors, including the current rate of inflation'. [Note to Saga: inflation is currently running at 9 per cent, not 69 per cent].
On the cheaper price that Margaret was offered as a new Saga customer through website Go Compare, it said this was in part explained by the 'policy cover and terms being different from the renewal quote'.
Saga also said the new customer quote was 'sourced through a different channel' to the one Margaret originally used to buy her Saga cover – she purchased it direct.
Under the FCA rules, insurers are (bizarrely) allowed to vary the premiums for identical policies according to how they are offered – direct, through a comparison website, or under different brands.
Consumer champion James Daley, founder of website Fairer Finance, says this provides a get-out for insurers. 'It shouldn't matter what channel a customer uses,' he says. 'The price should be the same. A renewal price should match that offered to a new customer wanting identical cover, irrespective of what channel they use.'
Saga said that customers should phone its call centre to discuss their renewal. It added: 'We can often help customers save money on their insurance by talking through their policy needs, and we know helping to save money wherever possible is important in the current cost-of-living crisis.' It's what Margaret did. She got nowhere.
Treating customers fairly should be a given, built into the DNA of all businesses. Sadly, in insurance, fairness is the exception – and unfairness the norm.
As our investigation today proves, insurance companies continue to fleece customers – many of them elderly – with premium increases that make inflation at 9 per cent look like a walk in the park. Increases being imposed on customers without any explanation. What arrogance What an affront. How out of touch these businesses have become.
The City regulator is meant to be forcing profit-hungry insurers to behave fairly with new rules that came in at the start of the year. Yet the evidence we found indicates they are running rings round it, exploiting loopholes to protect their interests. Many policyholders are even worse off as a result. A scandalous state of affairs.
It is time for the Financial Conduct Authority to flex its atrophied muscles and kick the insurance industry into shape.
That means launching an investigation NOW.
The message should be clear: treat customers fairly or risk a hefty financial penalty.
Although the FCA rules now require new and existing policyholders to receive the same price for identical cover, the practice of insurance companies offering lastminute discounts to dissuade customers from leaving continues.
Although such discounts can tempt some customers to stay put, such business practice discriminates against existing customers who don't complain – and agree to pay the renewal premium offered.
When Roy Winnard, from Greenwich in South London, received his car insurance renewal notice this month from Admiral, he couldn't believe what he saw. It wanted to charge him £1,556, a 70 per cent increase. 'I was spitting feathers,' says Roy, owner of a leather business, Metropolitan Leather. 'I have 21 years of no claims behind me and no convictions.'
Roy rang Admiral on several occasions to get an explanation for the 'obscene increase'. He was given no reason, but was told it would trim £100 off the renewal premium if he stayed with it. He wasn't interested – he found cheaper cover from Sheilas' Wheels.
'Why did I have to ring them to get the renewal premium reduced,' he says. 'If it could offer the cover for £1,456, it should have done that straight away.'
On Friday, Admiral confirmed that staff are 'sometimes' able to offer a discount to customers to stop them going elsewhere. It added: 'This does not mean that the renewal price quoted is incorrect.'
On the 70 per cent premium increase it wanted Roy to pay, it said: 'The increase in Mr Winnard's renewal price is due to a combination of rate changes we have implemented. Unfortunately, in this instance, the combination has resulted in a particularly high increase in his premium. We can't go into detail regarding these factors as it's commercially sensitive.'
Admiral is not alone in offering last-minute discounts to customers threatening to jump ship. Insurers maintain such discounts are permitted under the FCA rules, even though it results in customers with the same cover paying different prices.
The insurance industry and the FCA maintain that motor and home cover premiums are rising at a rate below inflation – even falling, according to the Association of British Insurers. The ABI said motor premiums fell on average by five per cent in the first quarter of this year. Yet our investigations suggest that many customers are being hit with inflation-breaking premium increases, without any reason given for the massive price hikes.
James Minett, from Warminster in Wiltshire, is a longstanding customer of Lloyds Bank, going back 60-odd years. He has long had home insurance with the bank.
Last year, cover for his two bedroom bungalow cost him and his wife Dee £392.19. This month, he was told the premium would jump to £746.26, a 90 per cent increase. He was flabbergasted.
What he couldn't understand is that his renewal price was based on Lloyds' arbitrary decision to give him 'gold' cover, including £1million of contents cover. Upon investigating, he found that the two other classifications his cover could have fallen into – bronze or silver – would have resulted in new premiums of £505 and £638, increases of 29 per cent and 63 per cent.
Victim: Pat Brant switched insurers after premium hike
'I've got money with Lloyds and they've been good to me over the years,' says James. 'But I'm not paying those premiums.' He has now taken out cover with Marks Spencer. On Friday, Lloyds said: 'In 2021, we launched a new product with three levels of cover – bronze, silver and gold. A number of customers were switched to this new home insurance product to ensure all our customers benefited from our latest offering.
'Our approach to which tier was offered at renewal was to identify the closest match to the customer's existing product, which in this case was gold. While we are not able to share details of pricing structures and changes by tier, on average those customers switched to the new product were offered renewal insurance at prices lower than what they paid previously.' Not the case for James.
Ray Lyman's home cover through Nationwide Building Society cost £224 last year. This year, he was told it would jump 33 per cent to £299. He thought the increase was 'ridiculous' and told Nationwide so. It refused to negotiate on the premium.
'It scares me to switch insurer,' says Ray, who is retired and lives in a three-bedroom bungalow in Cambridgeshire. 'These new regulations are doing no good for me.'
By dumbing down his cover so that it is less comprehensive, he brought down the cost to £247 and he stayed with Nationwide.
The building society said: 'Insurance policies are priced based on a number of factors, including individual risk and average claim costs – which are increasing above the level of inflation. When Mr Lyman purchased his policy he benefited from a discount. However, in line with the new FCA rules his current premium, which is aligned to new business pricing, now reflects the level of risk.'
For the record, Ray took out cover with Nationwide in 2016.
Gary Stock, from Enfield in North London, was recently told his car cover with Aviva would renew at a price 23 per cent higher than last year. He thought the increase was unjustified and sought an explanation from the insurer, but he couldn't get one. He tried emailing, but his policy didn't start with the right number to allow him to do that. He tried filling in an enquiry form via its website, but the system wouldn't accept his mobile number. Eventually, it said it couldn't find his policy. He gave up and did not renew.
Gary, a 65-year-old graphic designer, says: 'As a consumer, I am sick and tired of big companies like Aviva deliberately structuring their channels of communication to make it as difficult as possible for existing customers to contact them on subjects such as unacceptable price hikes.'
Aviva said: 'We're sorry we were unable to find Mr Stock's policy or provide a reply to his questions. We'll use this feedback to help us improve our services.'
Also, many Mail on Sunday readers point out that the new pricing rules do not apply to breakdown cover, which is often sold alongside motor insurance.
Sarah Taylor, from near Preston in Lancashire, recently received a renewal notice for breakdown cover with Green Flag, part of Direct Line. She was told the premium would be rising from £70.56 to £94.08. But Sarah, a retired solicitor, did what she has done for many years.
She went on to Green Flag's website and got a quote as a new customer for just £66.08.
Armed with this information, she rang them and it matched the online quote. 'It's worked for me over many years,' says Sarah. On Friday, Green Flag confirmed: 'Breakdown cover is not included in the FCA insurance pricing regulations.'
The Mail on Sunday's investigation into the insurance industry indicates that the FCA needs to get tough. NOW.
The Pat Brants of this world shouldn't have to fight tooth and nail to be given a fair deal.
On Friday, the Financial Conduct Authority was invited to comment on The Mail on Sunday's findings. The regulator said: 'We see our reforms of the insurance industry having a broadly positive effect.
'According to data from the Association of British Insurers, the cost of motor insurance fell by 5 per cent, year-on-year, in the first quarter of 2022.
'Of course, this doesn't mean that it hasn't risen for some, but for others prices will have gone down significantly more.
'Consumers can still shop around and negotiate a better deal, but they now don't have to switch just to avoid being charged a loyalty premium.
'Where insurance companies have supplied misleading or false attestations about the value they are providing customers, we will use our regulatory powers to ensure compliance with our reforms.
'This could entail directors being banned from the financial services industry and companies prevented from selling affected products until full compliance with regulation can be assured.'
It also said it would 'follow up' on our findings.
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