Law/Rules regarding insurance company charges for policy cancellation?

vladman

Hi, 

As per the topic title, are there any laws or rules governing what car insurance companies can charge for policy cancellation during the term of insurance? Or can they literally make their own rules regarding this? I'm specifically taking about what percentage of the premium (in my case paid in full when I took out the policy) is refunded based on how long into the policy term I am, and also, on top of that, their cancellation/admin charges for this? For clarification, there were no claims during the time insured. 

Many thanks! 

MovingForwards

The premium is recalculated on a pro rata basis, less the cancellation fee (which is quoted in the T&C's before taking the policy out and varies between insurers), you get back what is left.

dunstonh

As per the topic title, are there any laws or rules governing what car insurance companies can charge for policy cancellation during the term of insurance?
Whatever is quoted as their cancellation terms at the start of the policy must be applied during the policy.

vladman

Hi, thanks for the replies. 

The issue is that what they're offering back is much less than what the pro-rata calculation would be. On top of that, the cancellation/admin fee is extortionate, in my opinion. So I was just wondering if they can effectively do literally whatever they like, when it comes to this, as they seem to be doing in my (and no doubt, countless others') case.

I can give you the numbers as well. I paid £1330.00 for this policy, approximately 4 and a half months ago. I now need to cancel because of the change of circumstances in my life. They (the broker I bought the policy from) advised that the particular insurer I'm insured with retains 75% of the premium paid if one cancels after 4 months (unlucky for me), and then, on top of that, the broker wants to charge me £121.00 the cancellation fee. So they're saying I'd get £199.00 of the £1330.00 I paid just over 4 months ago, which seems like a bad joke to me.

dunstonh

The issue is that what they're offering back is much less than what the pro-rata calculation would be.
It is rarely a straight line pro-rata.  The trend is to be a heavier hit to you in the early days evening out as time goes on over the year.  

on top of that, the broker wants to charge me £121.00 the cancellation fee.
That will likely be because most or all of the commission will be clawed back and they need to cover their costs.    As commissions have fallen over the years, a lot of the remuneration received is in the fees now rather than commission.  However, you can check the broker cancellation terms to be sure that their figure is correct.

 approximately 4 and a half months ago. 
That is probably in the 60%-70% retention range.

which seems like a bad joke to me.
The problem is that you agreed to those terms when you signed up.

vladman

It all (sadly) makes sense, thank you. Yes, I know I agreed to their T&Cs when I took out the policy. It just stings. 

It seems the answer to my question is that this isn't really regulated, and they can charge whatever they feel like - and us agreeing to their T&Cs effectively ties our hands.

Thanks.

dacouch

The Ombudsman would generally require the Insurer to provide a pro rata refund less any admin charges unless the Insurer can prove a business reason to the Ombudsman for them not providing a pro rata refund

vladman

dacouch said:

The Ombudsman would generally require the Insurer to provide a pro rata refund less any admin charges unless the Insurer can prove a business reason to the Ombudsman for them not providing a pro rata refund

Are you saying that, at least in theory, even after agreening to their T&Cs, the requirement to provide a business reason for their policy on this to the Ombudsman still stands, so to speak? If I were to attempt to take this further? I'm not sure it's worth the time and effort, but I'd still like to understand.

Many thanks for your help.

dunstonh

The FOS do not expect or require an absolute pro-rata basis.  They allow a weighting to be more than pro-rata in the early months as the cost of setting up is suffered at the start but is recovered over the term.   There is more to recover in the early months than the later months.

This is why you see most cancellation terms being heavier in the early months and less so in the later months.

vladman

In simple terms, does the retaining of 75% of the premium paid once the policy has run for 4 months and over seem reasonable to you (and in your opinion, would it seem reasonable to the FOS), or not? And to clarify further, the £121.00 charge by the broker consists of their fixed £65.00 charge and on top of that they take 17.5% of whatever refund I'm due from the insurer. Which works out at that £121.00.

rudekid48

Your first step is to raise a formal complaint with the Broker - you can't go to the FOS until you've done this.  But, be careful what you complain about as it could affect what you can take to the FOS, for example if you raise a complaint with the Broker about the cost for time on cover (i.e. the 75%) they could respond that they do not set that rule as it is set by the insurer that underwrites your policy - so you could only complain to the Broker about this if they didn't include it in their T&C's up front.  Otherwise your complaint is actually against the insurer and the FOS would not act if you referred your Broker complaint to them.  Similarly if you want to complain about what the Broker has charged then you need to think about what the grounds of your complaint actually are - just saying that you think it is "too much" is not likely to get anywhere if you agreed to it up front and had your 14 day cooling off period to change your mind.  A valid complaint would be if their fees were not disclosed up front when you bought the policy or were potentially misleading in any way.   You have nothing to lose by raising complaints - it doesn't cost you anything, but based on what you've posted it's unlikely that you would really get anywhere other than maybe a token gesture from the Broker to reduce their fee slightly but there's no guarantee.