General Insurance Article - Over four million drivers caught in insurance loyalty trap

Ahead of one of the busiest months for car insurance renewals, new research* by GoCompare Car Insurance reveals millions of motorists are over-paying to the tune of £1.23bn a year for their car cover by allowing their insurer to automatically renew their policy.

 At their last renewal 4.6 million drivers rolled-over their insurance without checking to see if they could get the same cover for a cheaper premium – each missing out on a potential saving of up to £262.41.

 The new car sales peak in March means that millions of drivers have their insurance renewal this month. GoCompare Car Insurance’s Auto-Renewal Study found that, at their last renewal, 62% of drivers allowed their insurance to automatically roll-over, 15% doing so without checking to see if they could get a better deal.

 Loyalty (30%) was the main reason drivers gave for allowing their policy to automatically renew. Other reasons included lacking the confidence to switch (22%), an assumption that because their insurer offered the cheapest premium the previous year they would continue to offer good value this time around (15%), switching is too much hassle (10%) and a good experience with a previous claim (9%).

 The research also reveals that how motorists paid for their insurance cover had a bearing on how likely they are to shop around at renewal. Drivers who pay for their insurance monthly rather than annually are 54% more likely to allow their policy to automatically renew.

 Nearly a third (30%) of motorists pay for their insurance in monthly instalments, but drivers from the lowest earnings groups are 38% more likely to be monthly payers. While monthly payments allow customers to spread the cost of cover, insurers typically impose fees and interest charges which ultimately make this is the most expensive way to buy insurance. Therefore, it is often those who can least afford it, who end up paying more.

 According to one example found by GoCompare Insurance, a fairly typical annual car insurance premium of £497.46 turned into a total cost of 586.02 when paid monthly. That’s an additional £89 – an 18% increase – simply for paying monthly.***

 The Auto-Renewal research also found that only 35% of drivers look at what they paid for their insurance last year to see how it compares with the renewal offer, fewer still (17%) read through their renewal information to check for any changes to the cover offered.

 Commenting on the research, Lee Griffin, founding member of GoCompare said, “Insurers typically use their most competitive offers to attract new customers and rely on existing customers’ apathy to charge higher renewal prices. With 54% of drivers more likely to allow their policy to automatically renew if they pay monthly, it’s time for people to take control of their finances and consider how much they could be saving by switching.

 “While it may seem more convenient to file your renewal documents and pay for your insurance monthly, in the long term it's almost always more expensive than paying for your insurance up front in one lump sum and switching. Paying annually could save you around £179****, while spending a few minutes comparing premiums and cover levels could save you over £260***** a year.”

 Four tips from GoCompare to get the best car insurance deals:
 NEVER accept your renewal quote without first checking that the price you are offered is competitive, even if your insurer was the cheapest last year.
 Give yourself time to review your cover – note the renewal date in your diary and shop around at least a week before your policy renews to get the best deal.
 Compare prices AND check the small print. Make sure you make like-for-like comparisons and understand all the charges, any penalties, exclusions and terms and conditions you will be required to meet.
 If you need to spread the cost of your insurance, consider a 0% purchase credit card and set-up a direct debit to clear the total payment over the 12-month term of the insurance. This will work out cheaper than paying the fee and interest charged by insurers for monthly payments.  

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