Admin costs for cancelled insurance

Liam54

My 18 year old daughter's old metro has finally given up the ghost. She has her own insurance and rang up her insurance company to cancel the policy and her direct debit. She has been told that she will have to pay £45 administration costs.........This seems alot of money for cancelling a policy. As a poor student I was just wondering whether insurance companies can enforce these charges or can we do anything about these costs.

gazza975526570

Pretty standard although charges vary from insurer to insurer.

Nothing you can do and they are entirely legal.

You can however suspend the policy and reinsure the new vehicle (thats if she gets one) on the current policy. (There may be an additional charge for the change and/or dependent upon the car rating)

dunstonh

The £45 probably includes a cost for cancelling a credit agreement as well as cancelling the insurance.

If you borrow money and dont stick with the terms, then there is usually a penalty of some sort. Plus, there is often a pro rata cost. i.e. cancel 6 months in and you only get 5 months back (or there or thereabouts). That has to be factored in.

iceicebaby

As above!

the charge is set out in the terms and cnditions of the policy up front.

lisyloo

As a poor student I was just wondering whether insurance companies can enforce these charges

The charge was made clear to her up front in the policy and she was given the opportunity to read it and cancel.

To cancel a policy costs the company money in admin and it's quite right that your daughter should cover these charges.

As someone else suggested you may be able to suspend the policy and avoid the fee.
However be aware that this means she won't get a refund and the current company may not be the best value when she gets a new car.

Otherwise I'm afraid it a lesson, which is - read the documentation before the cooling off period so you know the terms and conditions.
In this case it wouldn't have helped much because it's fairly standard these days, so if she had concelled she would have found similar terms & conditions with every other insurer.

ArchieB_2

This is all a knock on effect of the publics desire for cheap premiums. In the past, all administration costs would have been averaged out and added to each persons premium.

To keep premiums as competitive as possible, admin costs are charged seperately. It is however, hard to justify £45 admin fee though. The true cost of cancelling the policy would be nowhere near this.

dunstonh

Unless we know how that £45 fee is made up, we cant say if its unfair.

It could include the cost of cancellation, a pro rata deduction from the annual cost of insurance and a cost to cancel the credit agreement. The broker (which could also be the insurer) needs to cover their costs and the finance company needs to cover theirs.

lisyloo

hard to justify £45 admin fee though

I think you would have a very hard time trying to prove this was unfair.

Consider (for example) the cost of setting up a call center.
Renting the building, furnishing it and training the staff.
Setting up the IT systems to deal with cancellation.
Obviously these costs will be split between a large number of policyholders but I think they would be entitled to include the set up of all their offices and IT systems involved in cancelling a policy.

I think you'd have a very hard time proving your case.

ArchieB_2

This is the same for any charge being applied though. The one-off transactional cost would be a few pounds at most.

The cost of setting up a call centre and all the other elements you mention would be covered in general operating costs. When I pay my annual premium, a certain amount goes towards all the operational costs. When I cancel my policy surely it is unfair to expect me to bear proportionaly higher costs than somebody who simply does not renew?

If the measure of 'fair' relates to the true cost of the transaction then anybody who works in the industry would tell you that £45 is nowhere near the transactional cost. If the measure of 'fair' relates to the fact that the cost is part of the contract terms and is designed to compensate the insurer for the loss of a customer and to cover the initial marketing cost then 'fair' it is.

ArchieB_2

By the way, I have nothing against cancellation fees if they are identified up front to the customer. I simply cannot support the assumption that £30-£50 reflects the true, transactional cost to the insurer.

lisyloo

When I cancel my policy surely it is unfair to expect me to bear proportionaly higher costs than somebody who simply does not renew?

I will hold up my hands and say that I don't know the legal definition of "fair".

My own opinion in answer to your question is that, yes you SHOULD pay more.
They have to pay people to deal with your correspondence, update your records and deal with the financial transaction.
If I don't cancel then why should I subsidise the costs that are incurred because of YOUR circumstances?

My own interpretation of "fair" is that if changes in your lifestyle incurr costs then YOU should pay them and not ME, however I fully accept that this is a personal answer and not a legal one.

The problem is (as another poster said) that premiums have been pushed down to a minimal margin so that insurers cannot afford to pay for any extra admin that arises, so they have to charge you on top.

It's a bit like getting a flight for 1p with RyanAir but having to pay for food, drinks, luggage, wheelchairs etc.
Whereas if you go with BA you pay £300 and get everything included.

We are now in the former situation with very cut down prices (please don't bother picking holes in my example, it's just an example to demonstrate the point).