What are the rules on car insurance cancellation fees?

SOB78

I was with Swiftcover for my car insurance for a year and renewed the policy on the 29th July. I then sold my car on the 31st of August as I am giving up work due to being pregnant. I was expecting some kind of cancellation fee but was mortified to learn that Swiftcover wanted £80.01 on top of the £40 premium I had already paid for August. The total premium for the year was £400 and this included an extra £40 for paying by DD. Since the end of August I have sent numerous e-mails to Swift complaining about the amount they are asking for. I have asked them to justify how they calculate that figure but all I've been told is that up to 30 days I have to pay 20% of the total premium and up to 60 days I have to pay 30% of the total premium.

Do I have any rights or are they able to charge what they like? As I have only just gone over the 30 day cut off period I asked if they would accept £40 meaning that I would have paid 20% of the total but they refused.

Any advice would be greatly appreciated as money is especially tight at the moment.

neas

I'd like to know the answer, Im with Churchhill paying by DD and want to cancel the policy... to move to a diff provider with my partner but they state 50 quid cancellation fee..!

Surely that cant be right as Im paying by DD!

stugib

neas wrote: »

Surely that cant be right as Im paying by DD!

Paying by instalments is just a convenience, you're just as contractually obliged to the annual contract as someone who paid in full at inception. You're not entitled just to cancel because you've found someone cheaper halfway through.

dunstonh

Car insurance is an annual contract. As stugib says, it doesnt matter if you pay monthly as it doesnt mean you have monthly cover. If you cancel you dont get exact like for like in the timescale. You often find a month or twos cover is added and you have the cancellation charge and possibly acredit charge in there as well.

The FOS generally rules in favour of the insurer when the cancellation fee is under £50 and the pro rata cover/refund is reasonable. Which it does appear to be here.

Paul_Herring

Table of premium refunds after which periods (presuming you paid up front. Paying monthly doesn't absolve you of making up any difference):
http://www.swiftcover.com/carinsurance/policy/cancellation/

Do I have any rights or are they able to charge what they like?

Yes, you have the right to read (or at least abide by) the T&C's, and no, they cannot charge what they like.

This is common amongst car insurance companies; it is not particular to Swift :
http://www.yesinsurance.co.uk/car-insurance/policy-insurance-cancellation.html
(All the others I found made mention of a partial pro-rata refund, most with a cancellation fee in addition.)

bethmorganuk

But, are the insurance companies bound by the same rules as the banks, in that the fee they charge should not exceed the actual cost of what is involved in the cancellation?

I recently cancelled my Churchill cover, and expected to pay a fee but not as much as they were charging me.

dunstonh

But, are the insurance companies bound by the same rules as the banks, in that the fee they charge should not exceed the actual cost of what is involved in the cancellation?

Not at all. Admin charges are not penalty charges. Completely different laws apply.

If you were a plumber and were called out to replace a tap, would you only be allowed to charge the customer the cost of the tap? No. you would have a margin on the replacement tap and you would have a charge for your time and a bit of profit margin built in.

bethmorganuk

Yes, but are they bound to show me how the charges are broken down. I understand that they are entitled to charge not just the base cost, and that there are admin fees etc as well, but do they have to ensure that the charge is reasonable rather than just saying, this is the fee, like it or lump it and charging what they like rather than as a reflection of the true value?

Paul_Herring

You cancelled a contract. An insurance one at that.

You cannot expect (e.g.) '6 months' cover to cost 1/2 the cost of 12 months.

What you can expect (and complain loudly if otherwise) is that they won't charge more than 12 months' worth of insurance for a cancelled contract.

You are being unreasonable in thinking a monthly direct debit covers the incremental cost of insurance, and that cancelling in month X absolves you of any further charges in lieu of a cancelled contract.

If you cancel early, you will be required to pay more than X/12 of the original price.

Your only concillation is that the total sum should not exceed the original cost of the insurance, and if it should your best bet is to not claim and let it run it's course.

dunstonh

Yes, but are they bound to show me how the charges are broken down

No. They are not penalty charges so no such requirement exists.

but do they have to ensure that the charge is reasonable rather than just saying, this is the fee, like it or lump it and charging what they like rather than as a reflection of the true value?

As long as their fees are published then its up to them. You would expect the fees to comply within the FSAs treating customers fairly guidelines. That means things like they cant go increasing fees much during your period of cover but wait until renewal.

However, there is no requirement for fees to be justified or accountable as long as they are reasonable.