Beware the automatic insurance renewal trap
Insurance renewal is a trap
We often warn that those who stick with the same provider of a service end up subsidising the offers made to attract new customers. It is the same with bank accounts, savings accounts, and with insurance.
The Sunday Times printed a good article entitled “Beware the trap of automatic renewal.” The advice was to change insurer each year or face an inflated premium at renewal time. The article points out the high discounts waved under the noses of new customers, and you as the renewing customer are the mug subsidising that discount.
My own insurance recently came up for renewal so I tested the market. Tesco Bank offered to renew my Tesco Value Insurance for a premium of £882.32 (last year they charged £704.84). I found a bucket full of cheaper quotes on the comparison sites, but the cheapest was an online quote direct from Aviva. For the same cover, and a smaller excess, the premium is £424. The difference is £458.32, which is more than half the renewal quote. That is an amazing difference, and when I told Tesco Bank they tried to reduce the renewal premium but failed to get below £700.
So there you go – customer loyalty does not pay.
What this means for the insurance market is beyond me. If we all change our insurer each year we will all get discounted premiums and the insurance industry will not take in enough premiums. But of course we won’t because we have other things to do, which is probably why I stayed with the same insurer for three years. When you decide you can’t be bothered to check the insurance market then do please accept my thanks for subsidising my discounted premium.
The Sunday Times article was written by Ali Hussain and printed 8 April 2012 on page 3 of the Money section.