Swinton Home Insurance cancellation charge

Thanks for your reply Raskazz, it was very informative, particularly the link to the FOS site.

In the particular case outlined in the second case study, the policy had run for 6 months before cancellation whereas in my case it had run for 7 days. As the policy has a standard clause allowing for cancellation within the first 14 days, I would argue that the charges incurred by the broker / insurer are not 'unexpected' nor proportionate to the £150 approx. for 12 months cover; this included the credit agremment at 29% APR and £10 setup fee for incepting via an internet transaction.

I have already paid £14.38 by debit card which I am happy for them to keep on the basis that it cost £10 for setup, the remainder being somewhat proportiante to the 7 days for which they were 'at risk'. The additional £45 does therefore seem to bear resemblance to banking charges, not in that it is for breach of contract, but rather that it can be seen as a penalty rather than a charge for actual cost incurred.

Although bank charges have not been conclusively deemed 'unlawful', they have been ruled to be covered by law reguglating contract fairness and the matter has been refered back to the OFT as a result (http://www.moneysavingexpert.com/reclaim/oft-bank-charges). Similarly, the FOS says of cancellation charges in the link you provided:

The FSA statement specifically refers to terms that charge policyholders a disproportionately large sum if they do not fulfil their obligations under a contract, or if they cancel it. We share the view that giving consumers the right to cancel – and then penalising them financially for exercising that right – is likely to be unenforceable in law, as well as unfair and unreasonable.

Regulation 13, para. (7) above only allows the provider to apply for costs incurred prior to the cancellation event, not for cancellation itself and as they have already applied a fee for setup it is difficult to see where these additional costs may have arose unless it is in lost profit or documents they choose to issue subsequent to the cancellation event. If this is the case, the charge would either be a penalty (prohibited above) or as compensation for lost profit, which is covered by ICOB para (1) you quote above.

Again, thanks for your comment and the supporting references; they've reassured me that this charge is unlikely to be enforceable. I will be interested to see what thoughts and experiences others have on this topic and hopefully it will get bumped enough to get Martin's take on it all.

Cheers

I understand that Swinton may make a charge for services rendered (in broking the home insurance policy) and that chrge was accepted and paid - it corresponds to the £10 for policy setup via the internet, as opposed to £15 for setup by phone. Also, I have paid the pro-rated cost of 7 days cover (the insurance).

According to the regulation above, neither the supplier nor broker (as providers of the main and attached contracts for services) are entitled to charge for costs due to the cancellation event itself, only for services provided prior to cancellation which I have already been charged for. Even though Swinton have stipulated the charge for cancellation in their terms of business, this would not be enforceable according to regulation 16:

16. - (1) A term contained in any contract is void if, and to the extent that, it is inconsistent with the application of a provision of these Regulations to a distance contract or the application of regulation 15 to a supply of unsolicited financial services.

(2) Where a provision of these Regulations specifies a duty or liability of the consumer in certain circumstances, a term contained in a contract is inconsistent with that provision if it purports to impose, directly or indirectly, an additional or greater duty or liability on him in those circumstances.

To reiterate, Swinton cannot claim the £45 is for policy setup - I have already paid £10 for this service. I have already paid for 7 days cover on a pro-rated basis. Anything beyond this was not a solicited service, other than the cancellation itself which is excluded from the legitimate charges specified in reg. 13. As per reg. 16 above, any contract term attempting to impose further liability than allowed in 13 will be void as it is inconsistent with the provisions.

If I am reading this incorrectly, please can you highlight which service in particular I have (i) asked for (or solicited as part of requesting a policy) and (ii) not already been charged for in the setup fee and pro-rated premium for 7 days cover? Thanks for helping me understand this guys - it is complicated but I have a gut instinct that this isn't a fair contract term just because it was there in black and white.

Thanks for your support Thunderbird - I'll keep you posted...

The relevant costs that can be recovered are fixed costs plus the marginal cost - large costs are involved in building and running the infrastructure that lets you click the 'buy' button online.

Think about the costs of an insurer or intermediary's entire sales operations - staff wages, buildings costs, compliance officers, marketing, IT hardware, software and support, training, underwriting, utility costs and so forth.

The charge that they can recover is basically equal to the total annual cost of these operations divided by the number of policies sold annually.

It appears that you are conflating the intrinsic cost of running a business (the fixed cost) with "any sums that a firm has reasonably incurred in concluding the contract", the key word being reasonable.

This may be in keeping with what Swinton are trying to achieve by charging £45 for cancellation but does not seem consistent with the regulations. It is the cost of concluding the contract that I am liable for, not the mean cost across all contracts - the charge then has to be proportionate to this and the service provided up to point of termination i.e. 7 days of a 12 month policy + setup costs for that particular policy, or rather the variable or marginal cost to use the economic term.

If it is reasonable to expect the consumer to pay a proportion of fixed cost in running their business, by analogy, it would be reasonable for an airline to charge for fuel, pilots' & cabin crew salary, airport service charges etc. on a scheduled flight where the only passenger left the plane prior to departure. If this was a charter flight I would agree, but the analogy holds here because in both cases the business costs would have been incurred regardless of whether the policy had been sold / ticket had been purchased or no.

Moreover, the act of cancelling does not deprive the company of the opportunity to use its fixed capital to sell further policies and therefore it is independent of my purchase and not something I am liable for.

Although I am undoubtably biased, this does not preclude that I am arguing my point logically and reasonably with respect to the regulations that govern the matter. It is the marginal cost (the cost of providing the one policy I bought) that I am willing to pay and I think a fair reading of the rules supports this.

IMO the strongest evidence that the charge is lawful is the fact that the Ombudsman receives hundreds, if not thousands, of such cases each year - and has not published any indication that such a charge is excessive.

The point you make about the FOS not upholding any complaints in this regard is valid but not conclusive. In any complaint to a legally empowered body it is as much how the complaint is phrased / what it is that you object to as what has actually occurred. If I complain that Swinton is making a charge that should have been factored into the total cost of insurance, this is what will be investigated and ruled on (as in the second case study on the site). However, if my contention is that the admin charge is disproportionate to the actual costs incurred, my complaint will require a different line of investigation.

I do intuitively believe the charge is disproportionate to the actual cost and this is my bias; I understand that if I make a complaint to the FOS or Swinton sue for the amount, the onus will be on them to demonstrate costs and this will be the clincher. However, as with bank charges, I suspect that this will be settled out of 'goodwill' rather than exposing the profit making opportunity such charges afford the industry - that is exactly why I am posting here: so it isn't swept under the carpet.

Thanks for your replies - it's certainly making sure I think about what I'm arguing! :T