JEFF PRESTRIDGE: Are greedy insurers taking us for a ride?

Inflation is a bad economic ailment that wreaks havoc on our household finances. So it is only right that the government wants it treated, no matter how painful the short-term operation is.

So far, inflation treatment is proving tricky as food bills rise and energy costs remain sky-high. That’s why more rate hikes are headed our way, courtesy of the Bank of England. Rise that the Bank hopes will reduce demand in the economy and dampen inflationary flares.

While the war in Ukraine (caused by increases in wholesale energy prices) and a tight labor market (driving wages up) are the main inflation drivers, opportunistic companies are also exacerbating the symptoms the Bank is so eager to eradicate.

In the world of financial services, no industry uses the cover of inflation to drive up prices more brutally than insurers.

Whether it’s auto, home, or pet insurance, many providers demand astronomical premium increases when customers’ policies are due for renewal.

They are increases that suggest the UK is experiencing runaway inflation (hyperinflation) rather than the 7.9 percent recorded in the 12 months to June.

Industry analyst Consumer Intelligence says auto premiums are rising a record 34 percent, while consultant Pearson Ham says average home insurance premiums are rising 21 percent.

Pearson Ham warns that ‘the trend of rising premiums will continue for the time being’.

Of course, insurers must raise premiums in response to rising costs to meet claims. For example, if it costs more to repair a plaintiff’s car than it did a year ago (due to higher labor and material costs), it is justifiable to increase the premiums. But with an average of 34 percent or 21 percent?

Come on insurers, you are fooling us. Averages, of course, obscure the mega-increases some insurers have tried to charge policyholders—often older, loyal customers. In almost all cases there is no justification – nor any given.

An insurer voluntarily explaining a 50 percent premium increase to a customer? Disappear the thought.

To illustrate this point, I’ll give an example of an insurer testing it out on a customer (I’ve got plenty more up my sleeve). Leonie Yeates recently received the renewal notice to insure her 13-year-old Hyundai.

For the record, she is a dear friend. Leonie, a copywriter from Wokingham, Berkshire, is 66. She has had no accidents, scrapes, bumps or fines in the past year. Most of her driving style is local – highways are not her cup of tea. She’s a conservative driver with a no claims discount going back six years.

Last year Churchill charged her £186.95 for cover. This time it wanted £288.04, a 50 per cent increase. She was extremely unimpressed – the only things that had changed were the age of the car and her own.

Realizing the virtues of shopping around, she turned to the price comparison websites.

Oddly enough, one of moneysupermarket.com’s recommendations was Churchill for just over £250. The policy was slightly better than her existing one as it had a lower voluntary deductible.

In line with regulations introduced last year by the Financial Conduct Authority (FCA) requiring insurers to offer existing customers the same prices as new customers, she contacted Churchill.

A sensible plan, given her existing coverage, was to renew at a higher price than for a better policy from the same company. At the very least, this is against the spirit of the FCA’s new rules.

She spoke to the insurer online and said: ‘You quoted me over £288 for an extension. On a comparison site, Churchill offers new customers £250.08. Existing customers must receive the same price.’

For the next 45 minutes, she played message ping pong with an employee dealing with multiple customers.

Increasingly frustrated, she reports: ‘I’m about to cancel the insurance. I can’t spend any more time on this.

“Do you want me to stop the renewal or match the price for you?” the answer came back.

“If you can agree to match the price of £250.08, I’ll take it,” Leonie replied.

“I have successfully adjusted the renewal price for you,” the agent said. ‘Thank you,’ said a relieved Leonie.

A 34 per cent increase from 50 per cent and a saving on her original renewal premium of £30.36. Rather painful to achieve, but a result nonetheless.

A few notes about this episode.

First, any customer who receives a renewal quote that exceeds the premium they paid in the previous year should not immediately accept it.

If you have access to a computer, use a price comparison website to see if cheaper coverage is available elsewhere. Also, just like Leonie, as a new customer, check whether your existing cover is available at a cheaper price from your insurer.

If cheaper coverage can be obtained from another provider, take it. If your existing provider is offering your policy to new customers at a lower price, please contact them and ask them to amend the policy – with reference to the FCA rules.

While you may get involved in a game of gaffe, most insurers will honor the new company price for fear of incurring the wrath of the regulator.

If you don’t have access to a computer, see if a friendly neighbor can help. Or (and this may not be possible) call your insurer and ask for a discount.

Second, compliance with FCA rules isn’t the only issue Churchill needs to address. His records are creaky. Since agreeing to the new renewal price, Leonie has had one letter of confirmation – and another stating her cover will automatically renew for £280.44.

Enough to make anyone bark madly. Perhaps that’s the point of Churchill’s nodding dog with his famous catchphrase, “Ohh, yes!”

Saga Petition

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The more readers who sign this online petition, the more likely Saga will reverse its clumsy decision to break the deal. You can register at: https://chng.it/9rFvgR2f. Thank you.

Keep investing

Investing is for long-term investors, not speculators.

So don’t be distracted by pundits who say the UK stock market is attractive (Fidelity’s Alex Wright) and others who take the opposite view and argue that it can stay cheap for a long time (Lindsell Train’s Nick Train).

Don’t buy or sell based on what they say, no matter how good they are as asset managers.

Just keep investing, preferably month after month, and through a broad portfolio of UK and global funds. Do that and you won’t go much wrong.

Investors put off by jargon

According to banking group Lloyds, half of adults are deterred from investing by financial jargon.

It is an investment barrier that (especially) fund managers and online platforms should address as a matter of priority.

After all, it is in their interest.

More customers and more sales. Remove the barricades NOW.