The car insurance ‘loyalty penalty’ is alive and well

Three years ago, the City watchdog said its new rules to stop insurers ripping off loyal customers would save consumers £4.2bn over the next decade. Well – how’s that going for you?

Over the past few weeks, The Telegraph’s letters page has been filled with tales of extraordinary increases in motor cover. Some readers have had renewal quotes from their insurers that are as much as 800pc higher than last year.

It’s true, it has become more expensive to cover the cost of thieves nicking your catalytic converter, or if you reverse into a lamppost at Sainsbury’s. Insurers blame a global shortage of car parts, soaring labour costs, modern cars becoming more complicated to fix and an ageing population (there are an extra two million drivers aged over 70 compared to a decade ago).

These things are all reasonable excuses offered by the insurance industry, even if the scale of the increases in premiums is far ahead of the rising costs of almost everything else.

The problem is that the Financial Conduct Authority’s (FCA’s) plan to stop “price walking” – the practice of steadily increasing the premiums paid by the millions of people who never switch providers – appears to have spectacularly backfired.

Drivers are reporting ridiculous increases in renewal premiums from their existing insurers, only to find that they can secure a far more reasonable quote after five minutes on a price comparison website.

That suggests that the age-old strategy of offering teaser rates to tempt new customers, while milking those unconcerned or unable to shop around for the best prices, has not gone away. You shouldn’t be penalised for staying with your insurer, but despite the FCA’s best efforts it seems that you are.

An MPs’ inquiry this week into crippling insurance costs, which charities say is forcing some people to food banks, did not shed light on what’s going on. And the opaque way that risk is measured makes it virtually impossible for a consumer to cut their costs.

Three centuries ago, brokers would negotiate the price of insuring marine trade over upturned tea chests at Lloyd’s of London. Today, the mysteries of insurers’ pricing is a black box you are not permitted to see inside.

Describing yourself as a tutor, teacher or lecturer might seem arbitrary, but pick the “wrong” occupation and you will pay more. Call handlers invariably will not be able to tell you why the premium is different for ostensibly the same job, and they certainly will not help you bring the cost down, even if that means more accurately recording your details.

One Telegraph reader informed their insurer that they now had just one car, rather than two. “Thanks for letting us know – that’ll be an extra £50,” said the insurer. I’m not disputing the validity of the algorithm, as people with fewer cars may well be more risky on average, but why not explain that to consumers?

You even get penalised for running multiple quotes in a bid to get the premium down. You might think you’re being clever, but such behaviour marks you out as risky.

So what can you do when renewal time comes around? I’m afraid the only guaranteed way to cut your costs hasn’t changed. Fight tooth and nail – remind your insurer that existing customers cannot get worse rates than new customers. And for God’s sake, don’t be loyal.