The hidden cost of motor insurance
It’s that time of the year again – your car insurance is up for renewal, which means you:
- Go to your favourite comparison site, which you’ve seen on TV during the adverts on ‘Bake Off’ (think meerkats, opera singers, and a calm bull).
- Spend an hour answering questions and select the cheapest insurance policy, and
- Get a good deal on a product you don’t really care about, right? Probably Wrong.
Turns out you can’t always have your cake and eat it! Caura explains why.
When you buy insurance, there are lots of hidden fees which, if you’re caught on the wrong side of them, can really add up for drivers.
Let’s be honest, who looks that the Ts and Cs? You just look at the magic number: the price of the policy. Whilst the FCA does make insurers disclose all the fees they charge, these are often in the fine print – which is hard to digest when you’re comparing dozens of insurers.
You’ll often find the fees in the TOBA (terms of business agreement) that lays the foundations of the agreement between you and the insurer or the broker.
What kind of fees are there?
There are two main types of fees: cancellation fees – when you cancel a policy – and mid-term adjustments fees – like changing your address or adding a driver. Then there are some less common fees – like getting paper versions of your insurance documents, or penalties for providing inaccurate information when you buy a policy.
Caura conducted some research on some of the UK’s leading insurers & broker fees. Across 13 leading firms we found the following:
Cancellation fees differ depending on whether or not you’re cancelling your policy within the 14 day cooling off period or not. Your insurer should get a refund for that all expensive comparison site fee if you cancel in the first 14 days. Outside the 14 days? Unlucky – you’ll likely get stung with a bigger cancellation fee and also for the days you’ve already been insured for.
Now, remember, there are often administrative efforts required to cancel your policy, so fees can be justified but the fees we found ranged from nothing, all the way up to £100, so clearly these are there to make up some of the money the insurer pays to acquire and administer the cancellation. More on that below…
What if you’ve moved house, changed your car, or you want to add a driver. It’s likely your insurance premium will change and in addition, there’s a fee here too with the maximum we found at £45, an average of £28 and the lowest at £10.
Remember, these’s fee’s won’t include the cost of the change itself. For example, you move address, you may have to pay for the insurance risk changing too. Add your fee onto that and you could be severely out of pocket.
Fees like replacement paper documents, or fees for providing inaccurate information to insurers when getting a quote are less common but they do happen – it’s important to make sure you answer questions correctly when getting a quote.
Why do fees matter?
When you buy a policy through a price comparison site, the insurer pays them a finder’s fee, and on top of this a lot of insurance brokers will take an additional loss on the premium you pay in order to acquire customers. Once these two things are accounted for, how do insurers ever make any money? There are three ways:
Firstly you often get stung when you renew (or your policy automatically renews unless you actively stop it!) – something often called the “loyalty penalty”. Take a look at the recent publication from the FCA on how they’re tackling the loyalty penalty.
Secondly, insurers will bank on enough people changing address, or cancelling their policy, in order to make a bunch of money on admin fees over the lifetime of a customer (before you inevitably switch away again after you get hit with these charges!
Thirdly, and most understandably, insurers often want to sell you other products, like breakdown cover and excess protection. These don’t seem unfair since you are actually getting some value for what you pay for – like getting picked up if you break down on the motorway. Additionally they might want to cross sell you home, van, bike, classic car, kit-car, motorhome or any other insurance product they have on offer.
How are fees applied
Normally you’ll have to spend half an hour on the phone to your insurance company, and calling your credit card details down the phone. You’ve probably also just spent 45 minutes on hold… Then they tell you your premium has changed, and you have to pay an admin fee.
It’s not necessarily unfair to charge a fee to make changes, it’s just that sometimes they can be excessive. So, make sure you read the details before you purchase, you wouldn’t want a nasty £100 cancellation fee or an £60 extra to pay your premium monthly.
What is Caura doing differently?
Caura charge the amongst the lowest fees in the industry (based on the research conducted by us in August 2020) and we’re transparent about them too – these reflect the time taken to process changes and are not about making a profit.
At Caura you can compare marketing leading UK insurers, features, cover, excesses and fees. You can also, for the first time, ever, have the main aspects of car management on one platform which includes MOT reminders, Tax reminders & payment along with payments for tolls, parking, ULEZ & Congestion Charge and this is for as many cars as you may have! What’s more, when you Insure with Caura you’ll have your documentation in-app, you can amend your policy and make a claim there too.