Car insurance companies take advantage of loopholes to keep renewal costs high for loyal clients.

Although it is illegal to charge more for renewals than for new contracts, the business still has a few tricks up its sleeve.
According to consumers who contacted Guardian Money, car insurance costs for renewing customers are up to twice those for new customers, despite a recent restriction on loyalty penalties.

One consumer was told that his renewal premium would be £368.74, yet a price comparison website provided a similar policy with the same company for £215.22. When he protested, the price of his renewal was reduced to £245.

Insurers have been prohibited from overcharging loyal policyholders in order to pay incentives to attract new clients from January 1. In 2018, 6 million consumers who stayed with their supplier overpaid £1.2 billion, according to the Financial Conduct Authority (FCA), which enacted the prohibition. The new laws are expected to save customers £4.2 billion over the next ten years, according to the report.
Consumers who believe that the prohibition permits them to sit back and relax without paying a charge may be surprised. They may still end up spending more to renew a current policy than to purchase a new one from the same provider due to loopholes in the new laws. Companies can still treat new and current consumers differently based on when and how they apply for a quote.

According to Martin Lewis, the creator of MoneySavingExpert, while the new guidelines will save some loyal customers money, they may find it difficult to determine if they are being charged properly. “Because of the [loopholes], there is wiggle space in the system,” he adds, “it’s difficult to pin down if insurers are playing games.”

Consumers should still shop around, according to a representative for the FCA. “To assess businesses’ compliance, we use a variety of measures, including detailed examination of reporting data from firms, as well as consumer and market information,” they continued.

There are a number of things that might raise the price for both new and existing consumers.

The ‘channel’

This is jargon for what method you use to apply for a quote. A channel can be a call centre, walk-in premises, the insurer’s website or a price comparison site. Insurers only have to ensure that a renewal premium matches that quoted for a new customer if they apply for a like-for-like policy via the same channel the existing customer used.

If the renewing customer signed up via a call centre or the insurer’s website, their premium is still likely to cost more than the same policy sold via a comparison site. Firms are allowed to offer different rates to customers depending on which of the many comparison sites they use. This means that a consumer who took out car insurance via Moneysupermarket three years ago can be charged more to renew than a new customer buying the same policy on Confused.com. To ensure a renewal quote is fair, you would have to remember how you originally came by the policy and check the prices for new customers on the same channel.

The date

The price match only applies to new quotes issued on the same day that a renewal quote is generated. It is news to many consumers that premiums can fluctuate for new and existing customers depending on the date and the time of day they search for a quote. Typically, premiums rise the nearer it gets to the date you want cover to start. That is because insurers reckon that those who fly by the seat of their pants might be riskier on the road.

However, early birds may also be shortchanged. A 2019 survey by MoneySavingExpert found that customers who renewed at the earliest possible moment, usually 30 days before their policy expired, paid an average of £388 a year more than those who waited a week. According to the website, 24 days before renewal is the optimum time for a bargain and may save you almost 40%.

The time

The time of day that you hit the search engines could make a three-figure price difference. Prices rise and fall according to the number and demographic of people who have applied for quotes that day. If a company has just signed up a lot of new drivers, it may raise the price for other new drivers to deter them.

Evening searches tend to yield more expensive quotes than early morning searches and night owls seeking deals in the small hours could end up hundreds of pounds out of pocket as they may be perceived as wild-living insomniacs who are a risk behind the wheel.

Add-ons

The FCA rules apply to like-for-like policies. Some loyal customers may accrue unrequested add-ons over the years without even realising it, and these are ultimately reflected in the renewal price. Check your existing policy to see whether perks such as driving abroad, personal accident and equipment cover are necessary to you before comparing the quote online.

Other tricks

The price of a premium is often based on apparently random factors, and a few tweaks to an application could bring it down. Younger drivers, for instance, may sometimes benefit by adding an older driver to their policy. Insurers may take fright at some job titles but not other descriptions of the same role. One reader was quoted more when he chose dental surgeon from a dropdown menu than when he had described himself as a dentist, while illustrators seem to be considered less risky than artists.

Lastly, make sure you are on the electoral roll. Insurers tend to use this for ID checking and if your absence makes that job harder they will charge you for it in the quote they give.