The Great 'Car Insurance Cancellation & Administration Fee' Hunt

Quentin

Better that than they cancel your policy!

It's not intended to be a credit arrangement.

Presumably they have given you the opportunity to pay what you owe and are keeping you covered.

dadsma

Here is a reminder of the Financial Ombusman's view of insurance cancellation charges which can be quoted when challenging unfair charges.

I think the key to the Ombudsman's rulings is the sentence;
"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."


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."

TiTheRev

Guys, I am in a financial quandry with this scenario.

I am trying to sell my car, and have bought another car in the meanwhile. We have transferred our insurance to the 'new' car but the sale car is currently uninsured. I have been notified that this is illegal :oops: so am trying to get short term cover until it sells.

Ideally I don't want to declare it SORN so that we can do test drives, and it increases saleability with the road tax on there, but cannot find a cheap short term insurer or an insurer that doesn't want a limb to cancel an annual policy!!!

Any help/advise from the MSE team?

x12yhp

Insurance Factory - £50 admin fee from them + £50 from the insurer giving a total price of £100 to cancel a £300 policy.

dunstonh

x12yhp wrote: »

Insurance Factory - £50 admin fee from them + £50 from the insurer giving a total price of £100 to cancel a £300 policy.

It would have been £100 whether it was £300 or £3000. That is the nature of fixed amounts. If it had been a percentage based fee, you would see people with larger premiums complaining that the percentage amount was too high.

Hillhappy1

My son's policy was due for renewal but he had not heard anything about renewal from his insurance company. He phoned them but they stated they had emailed him and the policy had been renewed.
He did not receive any emails, he checked his SPAM filter etc and there were no emails.
On top of that they upped his premium by £20 a month. He only knew this when they took his first months Premium from his account. Again they said they told him in an email.
He cancelled the policy because of the cost and they are now asking for £100 cancellation fee or they will debt manage him. They also will not pass on his NCB details until paid.


My questions are


Can we ask for records of the emails sent, with delivery and read receipts? If they can't produce them can they prove they sent them? Can he refuse to pay because of this? If he does pay, has he a claim to get his money back, Premiums and Fee? Does a cooling off period apply to renewals?
Can they refuse to provide his NCB.


Can he make a FOI request and ask for all this info?


A lot of questions I know but they do all tie in.


Many thanks for any info.

rs65

Hillhappy1 wrote: »

Can we ask for records of the emails sent, with delivery and read receipts? If they can't produce them can they prove they sent them? Can he refuse to pay because of this? If he does pay, has he a claim to get his money back, Premiums and Fee? Does a cooling off period apply to renewals?
Can they refuse to provide his NCB.


Can he make a FOI request and ask for all this info?

Yes he can ask for copy emails. Delivery and read receipts are dependent on whether his email account issues them.

Has he arranged alternative cover? If not, he is best to pay for the time being to keep cover in force. There will be cancellation rights in the policy - tell him to read it.

They can withhold proof of NCB whilst money is outstanding.

FOI only applies to public bodies. He could do a SAR with a cost of £10.

dunstonh

My son's policy was due for renewal but he had not heard anything about renewal from his insurance company. He phoned them but they stated they had emailed him and the policy had been renewed.

So, your son would have gone uninsured had they not auto-renewed?

Can we ask for records of the emails sent, with delivery and read receipts?

No. That is unrealistic and not required. You can ask what address they were sent to and when but not the rest.

If they can't produce them can they prove they sent them?

If they can provide the send date and the email address then it is assumed they were sent.

Can he refuse to pay because of this?

He can refuse to pay but he risks not getting his NCB verified and the debt going to a collection agency.

If he does pay, has he a claim to get his money back, Premiums and Fee? Does a cooling off period apply to renewals?

Your son is not in a strong position. had he bought insurance elsewhere, he would have a stronger position. However, your wording suggests he didnt. Normally, the insurer, with a bit of pressure, will refund the period of duplicate cover if you provide evidence of the alternative insurance.

Can he make a FOI request and ask for all this info?

FOI doesnt apply to commercial activity. He can spend £10 and do a DSAR but there is no need for that.

he can raise a complaint with them and see what the outcome is. He will be totally reliant on their goodwill though seeing as he didnt have insurance elsewhere (if that was the case)

Hillhappy1

Thanks guys for the answers. My son paid the £100 cancellation fee today so he could get his NCD. Funnily enough it appeared in his mailbox shortly after, so did not end up in the Spam folder.
He did start another insurance the day he cancelled. The company stated that he was outside of the cooling off period when he cancelled, which was 12 days. I thought cooling off was 14 days? Anyway he has new insurance, considerably cheaper and is happy, although the companies attitude was less than desirable over the phone.
I believed their was an Fsa guideline stating holding back of NCD documentation should not happen.

malchish

Hillhappy1 wrote: »

Thanks guys for the answers. My son paid the £100 cancellation fee today so he could get his NCD. Funnily enough it appeared in his mailbox shortly after, so did not end up in the Spam folder.
He did start another insurance the day he cancelled. The company stated that he was outside of the cooling off period when he cancelled, which was 12 days. I thought cooling off was 14 days? Anyway he has new insurance, considerably cheaper and is happy, although the companies attitude was less than desirable over the phone.
I believed their was an Fsa guideline stating holding back of NCD documentation should not happen.

If your son cancelled within the first 14 days - it is within the cooling off period. it used to be 7 working days ( distance selling regulations), but recently these regulations have been replaced by Consumer Contracts regulations, that give 14 days, starting from the day AFTER the service/goods have been received.
Your son can complain and will get his £100 back (they could only deduct pro-rata for those 12 days that he had cover for). the insurance company, when reminded of "consumer contracts", may agree and refund, or may refuse- in this case do not bother with ombudsman (unless you want to wait 2 years), but go straight to "letter before action" and tell them that if they do not refund within 14 days, you (your son) will issue a claim via moneyclaimonline without further reference to them, and that court fee will be added to the claim.
After your letter your son will receive a polite telephone call offering to resolve the issue and giving a refund.