The Great 'Car Insurance Cancellation & Administration Fee' Hunt

maniac886

Which companies charge the lowest cancellation fees? My insurance is due for renewal at the end of November and I presume that the renewal quote will be pretty much the same or even more than last year(£1650). The issue is that I turn 25 at the beginning of February and I have been getting quotes to see what the price will be. Well the quotes are coming in at the £650 figure.

Whats the best way of dealing with this? Get a new policy and pay monthly, then cancel and renew on my birthday? If so who is best to do this with?

I have looked at temporary insurance and it looks too expensive.

Thanks in advance.

dunstonh

Which companies charge the lowest cancellation fees?

Typically the ones that charge the higher annual premiums.

maniac886

dunstonh wrote: »

Typically the ones that charge the higher annual premiums.

I thought that would probably be the case. I am just wondering if my current insurer (Elephant) will extend my policy for 2 months.

shazzer43

I'm with Touchline - BDML Connect and have today received my renewal with the following fees quoted

Cancellation in the first 14 days. A pro-rata refund and a charge of £20. If you make claim or one is made against you the full premium becomes payable.

Cancellation after 14 days the following will apply in addition to the charge for any you have had cover. 1st quarter £85, 2nd quarter £70, 3rd quarter £55 and 4th quarter £40.

Duplicate docs £20

Mid term adjustments £20

Unpd Direct Debit 2nd attempt unsuccessful £20

Source: My renewal schedule.


I forgot to say I was able to cancel the renewal online today free of charge.

megrim

Just sold our car with 3 months left to run on our Zurich policy, paid annually, the remaining 3 months are worth about £35 (the annual policy was £140). They want £50 to cancel the policy. Does that mean I have to pay a further £15 to cancel? The policy wording is:

"If you cancel your policy later than 14 days from receiving it we will give you a refund in proportion to the time left until your current period of insurance is due to run out. £50 will be taken off this refund if you cancel your policy within the first year."

What happens if the balance on the policy is less than £50?

dadsma

I hope this is helpful.
It helped me get £150 charge for cancellation after 4 mths, reduced to a £25 admin fee


ombudsman news

issue 54

July 2006

annual insurance policies – cancellation rates

Most insurance policies contain a clause giving either party the right to cancel – provided they give sufficient notice. The consumer will generally receive a pro rata refund of premiums paid, less a cancellation charge. This charge will often be greater if the policy is cancelled during its first year than if it is cancelled later, because insurers want to cover the cost of setting up the policy.

In the complaints referred to us involving cancellation of annual policies, consumers generally accept that the firm may wish to make some charge to cover the costs incurred in cancelling a policy. But they often query the firm’s approach if it fails to offer them any refund at all – or if it offers substantially less than a pro rata calculation of their premiums.

In assessing such disputes we are guided by the Unfair Terms in Consumer Contract Regulations 1999 (UTCCR) and by the statements on unfair contract terms made by the Financial Services Authority (FSA) in its publication ‘Challenging unfair terms in consumer contracts’ (available on the FSA website

The UTCCR state that ‘a contract term that has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract, to the detriment of the consumer’.

Schedule 2 of the UTCCR sets out an indicative and non-exhaustive list of terms which may be regarded as unfair, including Term (d):

‘Permitting the seller or supplier to retain sums paid by the consumer where the latter decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the seller or supplier where the latter is the party cancelling the contract.’

In some policies the cancellation clause states that if the firm decides to cancel a policy at any point during the period of insurance, it will refund some of the premiums already paid – on a pro rata basis. However, if the policyholder cancels, then the firm retains all the premiums already paid, or refunds a smaller proportion than if it had itself cancelled the policy.

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.

In cases referred to us, if a customer has cancelled a policy and received a significantly smaller refund of premiums than could be expected as a pro rata settlement, we will ask the firm to explain how its approach complies with the requirements under the regulations.

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.

Similarly, the provision that premiums for an annual contract are not refundable if a claim has been paid does not appear to be unfair.

We recognise that there may also be seasonal or other features of the policy which could justify different approaches to refunds. And we recognise the more fundamental point that under some policies, both the risk and the insurer’s potential liability may be higher at the outset of the policy than at the end – so the premium calculation will reflect this.

But in any event, it is important for the firm to have fair reasons for its approach to premium refunds – and for it to explain its approach clearly to the customer.

In some circumstances, regulatory rules require ‘cooling-off’ periods for contracts. We would expect firms to make particular provision for these periods, as it is important that cancellation rights are not restricted by unfair charging practices. For example, the Insurance Conduct of Business rules require insurers to allow a cooling-off period of 30 days for pure protection contracts. If a customer decides to cancel the contract during this period, insurers are not entitled to charge anything.

Complaints about refunds under payment protection policies – and under other policies that are not renewable – require us to consider some additional factors. We hope to comment further on this in a future edition of ombudsman news.

case studies

insurance policies – cancellation rates

54/4
Cancellation of motor insurance by policyholder – whether firm correct in refusing any refund of premiums:

Mr A took out the firm’s standard motor policy in February 2005 and paid the annual premium in full. Five months later, he decided to sell his car as he no longer needed it. However, when he returned his policy to the firm, it refused his request for a refund of some of the premium.

The firm said that if it cancelled a policy, then it would normally make a pro rata refund of the amount the customer had paid. However, when a customer cancelled the policy it did not refund any premiums if the cancellation was made four or more months after the start of the policy. When the firm rejected Mr A’s complaint about this, he came to us – saying he thought the firm was ‘grossly unfair’.
complaint upheld
We asked the firm for a copy of the policy conditions. These included the following:
‘cancellation by us

... If you return your certificate… to us we will refund the part of your premium which applies to the period of insurance you have left. If we cancel this insurance because you have not paid the full premium, we will work out the refund using the rates shown below. We will not give you a refund if anyone has claimed in the current insurance period.
cancellation by you

If you have not made any claims in the current period of insurance, and you are not going to make a claim, we will work out a charge for the time you have been covered using our short-period rates shown below. We will refund any amount we owe you.
Period of time you have had the cover

• one month - refund up to 70%
• two months - refund up to 60%
• three months - refund up to 50%
• four months - refund up to 40%
• more than four months - refund 0%

Any refund made to you for any reason above will only be provided if your annual premium per vehicle exceeds £150.’

We asked the firm to explain why it had made these particular conditions. It said its main concerns had been to discourage customers from cancelling their policies and to recover the costs it incurred if they did so.

We then asked the firm how its costs could be so large as to justify its making no refund at all to customers cancelling more than four months after taking out a policy. The firm was unable to do this.
We concluded that the policy condition was unfair and contrary to the UTCCR. So we told the firm it should make a pro rata refund, after deducting a reasonable administration fee.

54/5
cancellation of house insurance by policyholder – whether firm correct to charge an administration fee

Mr Y insured his house with the firm in June 2005. When he married in December that year, he sold the house and cancelled his policy. In accordance with the cancellation condition in the policy document, the firm made a pro rata refund of his premiums, less a sum of £50 to cover its administration costs.
Mr Y thought it unfair of the firm to levy an administration fee, since he considered that administrative costs should already have been built in to the amount he had paid for his insurance.
complaint rejected
We agreed with Mr Y that the firm had allowed for administration costs when it calculated the price of its policy. However, since the policy had only – in the event – lasted for six months, the firm would not have recouped all of these costs; it had only received half the annual premium. And we were satisfied that it had also incurred additional and unexpected costs in cancelling the policy. We therefore rejected the complaint.

megrim

I'm not expecting any refund of premiums - what the insurance company seem to be saying is that they require me to pay an extra sum of approx. £15 to cancel my policy (the policy has run for almost 9 months, almost three quarters of its term). And the company has already received the entire premium.

rubbish_money_saver

Hi i am not sure if this is the appropriate forum but any help would be much appreciated. I recently took out car insurance with AutoDirect i got my quote online and gave all appropriate information including that my car is kept at a different address during the week due to work location and at home address at the weekend. However 4 weeks after commencing my policy i have now received notification that i have an additional premium of £800 to pay on top of my annual premium of £500 they state that this is due to a change in my policy. However on contacting them they confirmed that i provided them with all the details correctly originally and the issue is a dispute with their underwriters regarding my original quote.
Where do i stand regarding this additional premium as i took the insurance out on the basis of quote of £500, i have a confirmation email with the 2 addresses that i live at with the £500 premium stated!!

marmarama

Cheers, Dadsma, for that post which was helpful and well-sourced.
I notice you're a newbie, unlike dunstonh, a long-time expert, AND Financial Adviser to boot, and yet whose contributions to this thread seem to be mostly 'you can't do anything', 'you made the wrong choice' (as if there were any choice) and, irritatingly enough after 'you're not objective, but I am': 'These charges are acceptable, lawful, and !!!fair!!!'.

More of this handy information about what you can do, please.
Less of the finance industry apologists telling us to like it or lump it.

This is meant to be moneysavingexpert, not ripoff moans corner!

dadsma

marmarama, thank you for your thanks.

Perhaps Dunstonh would like to comment on my post #147