Car Ins Cancellation Charges

PJB

Hi All

I have car insurance with Service, taken out in Oct 09 and will probably need to cancel as getting different policy that covers everything.

Any way my insurers want 40% of annual premium to cancel in 1st 3 months and 50% after 3rd month and so on.

This means pro rata i would owe about £160 or so for 3 months but they want £280, can they do this?

I am sure its in their TandC's etc etc but surely charges must be reasonable and the above is not!

Thanks in advance

lisyloo

I think the answer you are going to get is that is probably is reasonable as they occur most of their costs up front regardless of how long you have the insurance.
The price you are quoted is based on them getting 12 months of business.
If it was only based on 3 from the start then they'd price it higher accordingly.

Why did you agree to the terms if you didn't like them?

olly300

This is old but may be off interest to the OP:
http://www.financial-ombudsman.org.uk/publications/ombudsman-news/54/insurance.htm

However if the insurance firm also offers short term insurance that would confuse the picture even more.

PJB

olly300 wrote: »

This is old but may be off interest to the OP:
http://www.financial-ombudsman.org.uk/publications/ombudsman-news/54/insurance.htm

However if the insurance firm also offers short term insurance that would confuse the picture even more.

Thanks Olly, interesting reading.

Any opinions on whether it is reasonable to charge 40% for cancellation within 3 months (25% of premium length)? My reading of the above would suggest it is not, but may be reading blinkered!

Although i do note this:
It is not usually unreasonable for the firm to recover any additional administrative costs it incurs. Nor is it usually unreasonable for its charge to reflect the costs it necessarily incurred in setting up the policy – and that will not now be spread over the assumed lifetime of the insurance.

So i think it is a question of whether or not it is reasonable!

dacouch

I would suggest that 40% for 3 months is fair as a lot of Insurers would charge in excess of 50%.

The charges the ombudsman felt were unfair because there was no refund after four months.

PJB

dacouch wrote: »

I would suggest that 40% for 3 months is fair as a lot of Insurers would charge in excess of 50%.

The charges the ombudsman felt were unfair because there was no refund after four months.

Thanks for your opinion, but . . . . (your not saying what i want to hear!) Why fair, what is it that they have to do to set up insurance that would equate to 15% of the annual premium. It is mostly if not all automated and done by computers!

I agree about theyour second point. Thanks for posting!

rudekid48

40% for 3 months is not that bad in comparison to some who would be 50% plus.

Be very careful before you get too excited about the link posted by Olly. It refers to a release from the FSA that is over 3 years old. If they were going to deem that short period rates were not compliant then there would have been a huge number of cases over the last 3.5 years as a significant number of Insurers have (and still do) charged short period rates during that period. Also, the context is different, they are referring to companies that do not give any money back at all in the early part of a policy, whereas yours are giving 60% back.

PJB

lisyloo wrote: »

Why did you agree to the terms if you didn't like them?

seems a bit harsh, do you say the same about all that have/are battling banks regarding charges? I take it you didn't try or reclaim any charges!

Simple answer is that i did not know my circumstances were going to change and thought at the time i would need the insurance for the year.

dunstonh

Why fair, what is it that they have to do to set up insurance that would equate to 15% of the annual premium. It is mostly if not all automated and done by computers!

The bulk of the costs are incurred at the start. So, its not unusual for the "penalty" to be greater at the start. Plus, there needs to be a disincentive for people using annual car insurance for short term cover.

Many plans are loss making in the first year. Cancelling during the year almost guarantees a loss.

dacouch

Bank charges are different as they are deemed to be a penalty, the charge from your Insurer is not a penalty. You have entered into a twelve month contract with them, you are breaching the contract by cancelling early so they are recovering the costs involved for them to cancel and the loss of profit for the year (They will probably not be able to recover the commission they paid the broker or website that you used to find Service).

PJB

dacouch wrote: »

Bank charges are different as they are deemed to be a penalty, the charge from your Insurer is not a penalty. You have entered into a twelve month contract with them, you are breaching the contract by cancelling early so they are recovering the costs involved for them to cancel and the loss of profit for the year (They will probably not be able to recover the commission they paid the broker or website that you used to find Service).

Both are terms or derive from terms in the contract.

I was asked why did i agree to the terms if i did not like them, my point is that people signed up for bank accounts did the same, no?