The price of loyalty can sometimes be much higher that people expect. This was particularly true when it came to insurance products. For decades, insurers made millions each year by charging people ever-increasing premiums when their policies renewed. This became notorious as the ‘loyalty charge’.
The loyalty charge was a bit of an open secret in the financial services industry. I was regularly assured by the industry that this form of overcharging was being phased out. Needless to say these promises largely came to nothing. So after a long and determined consumer campaign, the Financial Conduct Authority banned loyalty charges (the ban only covers motor and home insurance – keep an eye on your other policies).
The ban came in to place on 01 January 2022 with the FCA estimating that £4.2 billion would be saved over the next ten years. However, I’ve been contacted by a number of readers who have told me that their home insurance has increased at renewal, despite them not making any claims or reporting any incidents that might have affected their premiums.
The FCA has made it clear that they are monitoring the setting of premiums by insurers. But given that insurers don’t have to tell you all the details about how they calculated your premiums due to ‘commercial sensitivity’ it’s hard to know if you’re getting a good deal. It’s always worthwhile making a complaint if you think you are still being overcharged – or you could always get a sneaky quote by pretending to be a new customer to see if it’s cheaper. But you could save much more by moving to another insurer.
Quotes and comparison sites
Amazon recently announced it was moving in to the world of insurance – or price comparison to be precise. That gives you a clue about how lucrative the comparison industry is. The industry is quite tight-lipped about its profits, but most estimates put the collective total at over £1 billion a year. Sites charge insurers anywhere from £30 to £50 for each customer they source. So the industry is focused more on getting you to click through to the insurer – as opposed to giving you the most accurate quote.
Comparison sites work by asking you a limited series of questions so insurers can give you. rough quotes. As a general rule, the longer the information gathering process goes on, the more likely people are to give up, so comparison sites that are more thorough risk losing custom. However, the more questions you are asked the more accurate the quote, which will save you much more time in the long run.
The main factors that can affect your home insurance quotes
There are a few obvious things that will affect your premiums, from your postcode to the materials your home is constructed from. However, there are a number of other factors that significantly affect your final quote.
Here are my tips, if you’re planning on shopping around for a better insurance deal for your home.
Mark up the date
It’s really easy to miss your insurance renewal date. So before you start shopping around, dig out your policy and make a note of the end date – then add it to your calendar or diary. I’d also make an additional diary reminder set for five weeks before the renewal date. This will give you time to shop around, find the best deal or even negotiate with your current insurer.
Know your policies
Most homeowners have combined buildings and contents insurance policies as it’s simpler to arrange, plus the combo policy usually makes things cheaper. However, given the wide range of things that can go wrong with a home or contents claim, it’s useful to know the distinctions.
Buildings insurance covers the overall structure of your property and things that are considered to be ‘permanent’. How you define permanent is not as clear cut as you might think. The key factor is whether you can take away the items in the property with relative ease or not. So a fitted fireplace may be considered permanent, but laminate wooden flooring, if not affixed to the floor, may not be.
Navigating comparison sites
No two comparison sites are the same, which is why searching for quotes can be complicated. For a start, some insurers don’t appear on any comparison sites. Others have deals in place with different sites which mean you can get different quotes depending on which comparison site you are using.
But the biggest problem with home and contents insurance and comparison sites, is the quotes you get are often far removed from the actual premiums that you end up paying when you click through to the insurer’s website and complete the process. That’s because there are lots of factors that can affect the premiums you pay.
Comparison sites know that the more fields you have to fill in on their site, the less likely you are to complete the process (and come back as a repeat customer). So on one hand, you have the convenience of fewer clicks, but the quicker the process, the more inaccurate your final quote will be. Many people have told me that when they’ve gone through the insurer’s more detailed process and got a higher quote than expected, they’ve given up and gone with it rather than begin the whole application again.
Things you need to factor in to get the best insurance quote
Before you hit the comparison sites, it makes sense to have a think about your property and the factors that could have an impact on the final premiums you pay. Here’s my checklist.
Insurance companies are obliged to ask you questions that allow them to give you the most accurate quote they can. However, one of the biggest sources of complaint that I see with home and contents policies is ‘wear and tear’ – in this context, the repairs to your home that you probably should have got round to but didn’t. For example, your roof may be in need of a retile, or your garden fence might be leaning or looking a bit rickety. If a storm comes along and makes the damage much worse, you may find you are not covered if you make a claim. The same goes for home contents that might get damaged as a consequence of you not carrying out necessary works. You don’t have to mention every bump and scratch though, just what the insurer asks you.
Even if you are a renter, you’ll need to know a bit about the structure of your building. For example, I live in a top floor flat with a flat roof, which makes my property more at risk of flood or weather damage and consequently this factor alone has a significant impact on my insurance premiums.
The risk of flood and weather damage is going to affect ever-increasing volumes of people if the climate forecasters are right about what the future holds. Already many thousands are in ‘uninsurable’ locations due to repeated floods. But you don’t have to have been flooded to face higher premiums. As flood risks are mapped and evolve, it makes sense to check if you are affected before you apply for insurance. Pop your postcode in here: https://www.gov.uk/check-flooding. You may want to do this before you buy a property too.
If you’ve done up your home recently, from converting an attic or basement to building a man cave (shed) in the garden, your insurance will go up as there’s more space to cover (and more things in it that can get damaged or stolen). In fact, if you’re making some renovations, speak to your insurer anyway as this could affect premiums during the works if they are extensive.
Conversely, improving your wiring, safety features and security additions can reduce your premiums. Even a certain type of lock can make a difference.
The way we live has changed dramatically in recent years. One of the biggest changes is we tend to have many more valuables in our properties than before. If you think about the number of electronic devices alone you and your family possess, it’ll soon become apparent that your policy limits and excess fees will need to be at an appropriate level to sufficiently cover them.
It’s a bit of a faff, but I’d take a little time to go round each room of your house and price up the items that would cost you a significant amount to replace. Take photos of them and save the pics somewhere safe on your laptop or computer. Price everything up and factor this in when choosing the appropriate insurance policy limits. Trust me, if you need to make a claim this will be invaluable – especially as you’ll have to prove you own the items you are claiming for.
Oh, and if you have designer clothing, do photo that too. I’ve seen many a questionable claim from people whose wardrobes are allegedly stuffed with Armani and Versace clothing (but not evidence). Insurers will be sceptical, so designer-buffs, be prepared to catalogue your wardrobe!
Featured in Times Money Mentor – Martyn James