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It looks so innocent. A small envelope through the door, containing a simple reminder that your home or car insurance policy is due for renewal. Thankfully, the insurer has made things easy for you — a quick phone call, or perhaps even a visit to their website, and the premium is paid for another year. Peace of mind in a few simple steps, and you can get back to the gardening or season six of Game of Thrones.
Contrast that with the alternative. Hours spent hunting for a better deal (and however simple it might be online, it always tends to take longer than you anticipate). Endless phone calls to brokers and call centres. And a series of tough questions to ponder: How much would it cost to rebuild my house? What is the value of all my worldly possessions? Would I need a courtesy car if my own was unavailable? What sort of locks do I have on my windows? Am I likely to drop my mobile phone? Do I really need to get a valuation for that ring I inherited from my grandma?
Faced with a choice between ticking the renewal box and going through an awkward process of self-examination, it is easy to see why many people simply opt to maintain their policies with their existing insurers.
But that could be a mistake. Like it or not, as time progresses our insurance needs are likely to change. And even if they don’t, the prices of our policies will. What started out as good value may, over time, become shockingly expensive.
How often should I switch insurers?
Like much else in insurance, this depends on your personal circumstances. If a lot has changed since the last time you bought the policy, it’s worth having another look.
Even if your car or home has not changed, the premium might well have done. Some insurers price policies cheaply for new customers (especially on price comparison sites), then slowly push them up when it comes to renewal. According to research from the Financial Conduct Authority published last year, customers who had been with the same insurer for five years pay on average 70 per cent more than new customers.
Other things can also influence the price. Insurance taxes have been rising, for example, pushing up premiums. And the drop in the value of sterling will make it more expensive for insurers to buy car parts outside the UK. A surge in claims can also push up premiums across the board.
“We recommend everyone checks their prices once a year,” says Dan Plant of Moneysupermarket.
Thankfully, comparing this year’s price to last year’s will soon become easier. Historically insurers have not had to include last year’s price on the renewal letter. Anyone who wanted to compare the prices side by side had to fish out the renewal notice sent out a year earlier or check through bank statements.
From next year, however, the FCA will require insurers to include the previous price on each renewal letter for motor, home and health policies.
How can I cut the costs?
People in the industry, unsurprisingly, say that it is unwise to focus too much on price.
“Shopping on price alone is a mistake,” says James Dalton, director of general insurance policy at the Association of British Insurers. “Consumers need to understand their needs and make sure that their insurance covers them for those needs.”
Still, there are ways of keeping the price down and still getting the right amount of cover.
“In car insurance, younger drivers face higher premiums,” says Mr Dalton. “They can look at using lower powered vehicles or telematics based policies.”
Telematics systems — also known as black boxes — measure how a car is being driven. If a driver can prove that he or she is driving well, the premium should fall. For that reason they are often used by younger drivers, but anyone can have them fitted.
Increasingly telematics systems are also being used to spot fraud in car insurance and detect when a vehicle has been involved in an accident.
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It is also worth thinking about whether you need fully comprehensive or third party cover for your car. “There is a big misunderstanding here,” says Mr Plant. “Third party can actually be more expensive as you are flagging to the insurer that you are a higher risk driver.”
Adding other people to the policy can also help. “If a 17 or 18 year old is the main driver and you add a more mature person to the policy, that will bring the cost down as the risk is being shared,” he adds.
For home insurance, the key thing is to put down an accurate assessment of what the building and the contents are worth.
“One of the biggest challenges for our industry and the policyholder is arranging the correct insurance cover and making sure the sums insured are adequate. One of the most common errors made by consumers is incorrectly assessing the replacement value of their contents, jewellery, art and possessions,” says Grahame Lamb of insurance broker Sutton Winson.
Mr Plant of Moneysupermarket believes that many people overestimate the value of their contents, and some also aim too high on the rebuild value. “A lot of people put in the market value, but that could be considerably more than the rebuild value,” he says.
You can also cut the cost of home insurance by modifying your house, such as by installing a new security system or smoke alarms.
One way to cut the cost of the policy is to pay for the whole thing at once rather than in instalments over the year. Granted, this can put an extra strain on the household finances in the month that the premium is paid, but many insurers charge more for policies that are paid in instalments. According to Mr Plant, it is likely to add an extra 10 per cent — and perhaps up to 30 per cent — to the cost of the policy.
“Our industry could offer instalments at no extra cost, but many don’t,” says Mr Lamb.
Another way is to change the split between the policy price and the excess. The higher the excess you are willing to pay in the event of a claim, the lower the policy cost should be. But the relationship between the two will depend on the person buying the insurance.
“If you are a lower risk driver, the difference between the price and the excess won’t be as much as if you are a young driver with a sports car,” says Mr Lamb.
Should I buy the added extras?
You’re almost there. You have worked out how much grandma’s ring is worth, added some extra people to your son’s car insurance and decided that you’re comfortable with a higher excess in return for a lower premium. The finish line is in sight.
Not so fast. Here come the added extras.
Insurers love these add-ons — many of them make a big chunk of their profits from breakdown cover, legal fees insurance and no claims bonus protection (as well as the extra income from people who pay monthly rather than annually.)
But they do not always work out well for the buyers. Two years ago, the Financial Conduct Authority looked into add-ons, and found that customers were overpaying for them by up to £200m per year. In response, it banned what it called opt-out selling — making customers buy add-ons by default, such as through pre-ticked boxes.
Whether the add-ons are value for money now depends on your circumstances, but insurance experts point out that many people already have this sort of cover from other sources, so do not need to double up.
Mr Plant says that some people will already have legal protection via employers and trade unions. Breakdown cover, meanwhile, is often included in packaged bank accounts or comes as standard for a limited period with a new car.
Even if you decide you need the extras, check the price. “Unfortunately, there are organisations that sell add-ons such as legal cover at expensive prices to supplement their revenues,” says Mr Lamb. “I would suggest that the cost for personal legal expenses should be no more than £16 for up to £50,000 of cover.”
Is my insurer good at paying claims?
There is no point in having insurance if, when push comes to shove, the insurer makes life difficult when it comes to paying out. So having confidence that your insurer has a good record on claims is important.
Unfortunately, it is very difficult to track insurers’ records in this area.
“We as an industry recognise that we have a reputational problem. Consumers think we try to wriggle out of claims so we’ve started to publish the amount of claims that are paid out by product line,” says Mr Dalton.
Data produced by the ABI this year showed that 99 per cent of motor claims are paid, but the figure falls to 87 per cent in travel insurance and 79 per cent for home insurance.
Elsewhere, the Financial Ombudsman produces data on complaints by product category. Car insurance comes out worst here, accounting for just over a quarter of the (non-PPI) insurance complaints that the Ombudsman received in 2015/16. Buildings insurance was next on the list. Mobile phone cover, by contrast, attracted relatively few complaints.
However, that data partly reflects the fact that more people buy car and buildings cover than some other types of insurance.
The Ombudsman also publishes data on the number of complaints it receives about each insurance company. The latest data, published this month, showed that the biggest brands attract the most complaints, although as the largest companies in the market this might not come as a surprise. It is also worth noting that complaints about general insurance products are far lower than complaints about PPI or banking products.
For a more qualitative view, Moneysupermarket has a star rating of claims experience based on feedback from its users. And Which?, the consumer group, also compiles data on claims satisfaction, although that is only available to subscribers.
How should I buy?
You have three choices here — direct from the insurer, via a broker, or via a comparison site.
Comparison sites are convenient, offering a wide range of insurers from the comfort of your own PC. But the ABI’s Mr Dalton says they might not be for everybody. “If you have a thatched roof, live in a flood area and have an art collection, you are probably not going to find all that on a comparison site,” he says.
People with more specific needs might benefit from using a broker, who can provide a more personalised service. “[Brokers] can give advice on a number of issues, including support in the event of a claim,” says Mr Lamb. “A broker will have access to a portfolio of insurers and they will do the review work… and provide a qualified recommendation.”
The third option is going direct. This can seem like the most time-consuming choice, as it requires going through the same process with a number of companies. But it could be worthwhile. Those insurers that have got to grips with the best ways to use data may be able to offer better deals to people who are already customers, based on what they already know about them.
Aviva, for example, found that people with pension savings products tend to be relatively safe drivers, so it has started to offer car insurance discounts to its pension customers.
And if you are dealing directly with the insurer, it may be possible to haggle to get the price down. According to a survey from Which? earlier this year, half of people did not haggle with their home insurer and, of those who did, 60 per cent managed to get a better price.
Do you really need mobile cover?
You may have seen them on the train or in the pub. People frantically trying to peer through the shattered glass of a broken smartphone, or looking around aimlessly as they wonder what to do without a mobile.
Given the central role that phones play in many people’s lives, the temptation to buy mobile phone insurance to cover loss or damage is strong.
It is widely available, with specialists such as Protect Your Bubble and Gadget Cover offering tailored policies for phones, tablets, laptops and other gadgets.
But take a close look at the price. To insure a Samsung A3 smartphone (including cover if I lose it myself), I was quoted £6.49 a month by Protect Your Bubble. Over a year, that works out at almost £78 for a phone which sells for £210. In other words, if I insured it for three years, the insurance would cost more than the phone.
As with other types of insurance, check that you are not covered elsewhere before buying a standalone policy. Some bank accounts throw in mobile phone cover as part of the package. It may also be available as part of your home insurance.
And if you do buy a specialist policy, check that it covers you for whatever it is you are most worried about. Not all policies cover accidental damage, for example, or the risk that the owner loses the phone through carelessness.