A big pack of documents falls through the letterbox. For the vast majority of home owners, this is the beginning of the insurance cycle. For all home owners, other than first time buyers. It’s the source of maybe half the calls I receive at work. We are discussing the arrival of the home insurance renewal invitation pack. The customer rips open the envelope and goes straight for the price. Nothing else matters. And hey, would ya believe it? It’s gone up! Again. They’re straight on the blower, summoning up the most indignant and authoritative voice they can produce, in the mistaken belief that the lowly paid advisor they are about the speak to actually gives a shit.
Let’s cut to the chase. The customer wants to know why the price has gone up. I can give you an instant answer. Because prices go up. Cans of beans. Lawnmowers. Milk. Diapers. Prices go up. Satisfied? No, of course you’re not. What you really want to know is what exactly is behind the increase, and more importantly – why is it more expensive that you can find on those amazing comparison websites. Ok. Here goes. The answers to your questions about price rises. All of them.
It hasn’t gone up.
Actually bother to check up what you paid last year, or you will make yourself look a bit of a twit. I regularly receive angry calls about huge price rises from customers whose premium has either gone down or remained the same. I recently had one who phoned up to cancel on principal, because it had gone up. He simply wouldn’t have it, these outrageous hikes on premiums. He had bought another policy which was actually more expensive than his renewal, on principal. And, as we quickly established, had less cover. I read out the price we were quoting this year. And then I read out last years premium. He gloated, as smugly as he could, that this – his cancellation – would teach me. I quoted both prices again. A little more slowly, to enable his brain to take in the info. An awkward pause. The penny dropped. I gloated, smugly of course, that I had cancelled his policy, as instructed. Another penny dropped, as he realised I genuinely didn’t give two figs.
What’s the rate of inflation? What’s it been over the last year? Give that some thought, before moaning about increases of a couple of per cent. A huge number of policies go up by only a few per cent each year. Customers will gripe. My most favourite gripe are those who believe that their premium should go down because they’ve never made a claim. I congratulate them on their careful stewardship of their home. But if they’ve never made a claim, then they’ll already be getting the maximum discount. What do they expect? The price to go down every year until eventually it is free? Not going to happen. There’s always going to be a minimum premium. Some customers won’t have it. I can but ask them if their house shrank this year? Did it get smaller? No? But they don’t often get that line of enquiry either.
Made a claim in the last year? Then your price will go up. This is the trickiest one of the bunch. The fact may be that your current insurer has a speciality. Low Risk insurers, for example, may or may not be your best bet after you’ve made a claim. Brokers and Intermediaries* will quote your policy against all the insurers in their panel, and it may be that the only one on their panel who will now take on your policy are just plain expensive. Such is life, you may need to move on. But make sure your claim is settled first, or you could get yourself into trouble. Claims are something I will return to in another post.
Differing Cover Levels
This has to be, hands down, the most common cause of wildly differing prices when customers shop around and compare against their renewal. I bet you’ll look at some of the other reasons for price rises that I’ve listed and pin the blame on one of them. Maybe. But this is the most likely cause of them all. By far. The company I work for, for all their faults, are pretty competitively priced. So when a customer rings up and tells me they’ve found exactly the same cover for half the price, I immediately know two things. Firstly, I’m dealing with an idiot who has no idea what they are doing. Secondly, he or she is going to spend five minutes polluting my brain with utter bollocks. Five minutes that I will never get back.
Unfortunately, the idiot is often convinced he or she is an expert and will often end up cancelling a policy for an lower spec package that we could have provided for less than they are now going to pay. Sometimes they will refuse to discuss the cover levels of the new policy. More often than not, this is because they have no idea what the cover levels are. I’ll let you into a secret. I can see what cover you’ve selected. At least, if you’ve gone onto a comparison site and we’ve also offered a quote, then I get a look at what you entered. I know what sort of cover other companies offer. I can put two and two together.
Most common differences? First up, excesses. Sometimes, customers enter a sum into the Voluntary Excess box and believe it to be the total excess. Other times the alternative policies just have high standard excesses. Secondly, basic cover limits. This is a difficult point, and again another post will explore this issue. But I repeatedly see people selecting policies with ridiculously low cover limits on contents. Low enough, at times, that they are effectively uninsured. Thirdly, accidental damage cover. There are different levels of cover available. Fourthly, optional add ons which are not included in the new quote.
Sometimes, you don’t know whether to laugh or cry at the stupidity of home insurers. Under insuring yourself is one thing. Invalidating your new policy by deliberately leaving off somewhat important details is something else. Another recent example; a customer called to cancel their policy because they’d got one half price. On a comparison site, of course. I confirmed the name of the comparison site. There was only the one quote there. I asked if she bought it online with those details. She had. I confirmed that she’d selected all the right cover to match our policy.
But. Just one thing. She didn’t seem to have entered the rather enormous claim, nearly five figures long, that she’d had just a few months earlier. There was a pause. “Yeah, but it’s cheaper, and I’m shopping on price.” I tried to explain that it’s cheaper because it’s hopelessly invalid. Did she actually want her house insured in case of a fire or burglary or other disaster? She did, or so she said. I tried an analogy. So, you’re car shopping. You need a car because you have to drive to your job. You see two cars. One is in fine working order and costs £3000. The other has no engine, no wheels and ain’t going nowhere. But it is only £1,500. Which car do you buy? She wanted the one that works.
The analogy went completely over her head. “Yeah, but this other one is cheaper so I wanna cancel yours”. Ok. Let’s be more blunt. Here’s what happens. I cancel this, and then a few days, weeks or months down the road you get a call from your new insurer. They’ve run a check through a claims database and what do ya know! You failed to disclose a big fat juicy claim. They cancel your policy there and then, on the spot, back to the date it started. Now you have no insurance.
Worse, when you go to get a new quote, a whole bunch of insurers won’t touch you with a barge pole, because you have to disclose that you’ve previously had cover cancelled due to non disclosure. You’re not going to make the same mistake twice are you? Then, the ones who will insure you will charge you an arm and a leg. This policy I’ve got here for you will be cheap by comparison. Are you sure you want me to cancel it?
“Yeah, because the other one is cheaper”. Done, madam. Cancelled. Please get off my line. I can only deal with a certain amount of stupid in one day, and you’ve pretty much used up my entire days tolerance in one call. Some people deserve a little house fire now and then…
Insurers use a post code rating system. If there have been floods or subsidence claims in your area, or an increase in crime, they may adjust the rating of your post code area. And it may cost you. Even if you do live on the one hill in your area that recently got flooded by the nearby river and are in no danger of a deluge yourself. Bad luck.
Fortunately for you, not all insurers use the same ratings. So other insurers may be fine. I cannot even begin to tell you how quirky underwriters can be. We have one insurer on our panel who’ll decline you if you had a County Court Judgement 20 years ago. But if your entire village got washed away in a monumental flood last winter? No problem!
Maybe you feel I’ve been biased towards the corporate giants and scathing towards the customer so far. You have me labelled as a lackey of the insurance industry. Then this one is for you. It’s a policy I think is utterly disgraceful. Disgusting. Unethical. And is most definitely not about ‘treating the customer fairly’. That last point is an important one. Insurance companies, all of them, boast about Treating Customers Fairly. Check Google.
What happens is this. Maybe last year you paid £200 for your policy. This year, they quote your renewal, and it comes up £185. The price has gone down. But, the brokers management reason that most people are happy if the premium stays the same. So they simply add £15 to the renewal price. There’s no justification for it. It’s simply taking advantage of customers, many of whom may be elderly and not have the ability to shop around an awful lot.
There was a related article on the BBC recently, although that concentrates on automatic renewals. The commission editing happens on all renewals, regardless of payment method. You might want to consider this next time an insurer offers you a deal where they will ‘freeze the price’ for two or three years. Yep, I’d take that with a pinch of salt.
No Claims Discount
Another naughty practice by some companies. They offer a discount if you haven’t made a claim. Up to nine years, some of them. Nine years?? In two years of dealing with policies, I don’t think I’ve ever seen an extra discount awarded when changing the NCD from 5 to 9 years. Pfft. But this isn’t the con. The con is that they don’t amend your NCD as the years go past. Why should they? To do so would mean paying someone to press buttons to make policies cheaper. Why not not pay someone and see more expensive policies?
So there you have it. Eight answers to your grumbles about rising insurance prices. It is, truly, a minefield. Good luck!