Cheaper Insurance? Only if you promise not to cancel the policy: In a recent survey of car insurance companies we were surprised to find a wide range of costs and fees which are enforced should anyone wish to cancel the policy mid-term. Individual insurers will refund some of your premium payment based on how long you have had the policy out for, though this is not always pro-rata.
The cost we focused on for this report was the "administration fee" for cancelling your policy. One would assume that clicking the "cancel this policy" button on the customer service reps screen would take less than a second and that the only admin cost is the price of a stamp to send you out an official document by post. One would assume wrong - and finding out the actual admin charge from each insurer was much harder than we expected also.
When reviewing the policy documents we found only Elephant.co.uk didn't mention that an administration fee would be applicable in the event of cancellation. Initially that led us to believe that there would be no fee at all. However after a further investigation we found that there was an administration fee of £47.50 applied. Although quite why this isn't disclosed in the policy documents is a mystery.
Elephant, however are not the only ones who omitted their additional charges to cancel from their documentation.
The RAC, Sheila's Wheels, Sainsbury's, Churchill, Esure, Co-op and Privilege all used the following terminology to advise of an impending charge but refrained from disclosing the actual sum.
"Less an administration fee to take account of our costs in providing your policy. The fees are detailed in your Schedule"
It is generally the case that people are only notified of the "cancellation tax" after the policy is taken out, and even then a customer service agent delivers it in a machine gun fashion either just before or just after the speech about your direct debit guarantee.
Such is not always the case. MORE TH>N for example have no problems advising you that it will charge a hefty £55.00 should you wish to cancel mid-term, whilst Zurich levy a £50.00 charge if you cancel during the first year. This is a fairly substantial charge when compared to the £26.50 applied by Barclays Insurance.
The two main questions we passed to insurers were: How is an administration fee worked out? Why is it so different between companies? Those questions remain largely unanswered as after contacting six different insurers, as yet only one has responded to those questions - Swiftcover.com.
Swift Cover deserve a special mention not only because they weigh in with a modest £25.00 but their policy documents contain a complete breakdown of the percentage premium refund to be expected over the year.
Craig Staniland, Underwriting Director for Swiftcover.com, told us: "Swiftcover.com does charge £25 to customers who cancel their policies during the first 14 days. There are two reasons for this nominal fee: to cover our administration costs and to also reduce the number of people who enter into a motor insurance contract and cancel at the first opportunity once they receive their Certificate of Insurance."
The AA also charge £25.00 but the terminology used in the booklet is far from clear, and it took a phone call to have it explained properly by a "very nice man".
LV were reluctant at first to give out the information over their live chat service but eventually admitted to charging £35.00.
A number of these insurers will charge this cancellation fee no matter how long you have had a policy with them. Some, though, only charge these admin fees in the early stages of the policy which seems to be more justified.
Finally, Saga will only charge you if the administration cost incurred exceeds £5.00, although they don't offer an upper ceiling limit.
According to the Consumer Action Group however it is unlawful to implement an incorrect pre estimate for the administration cost incurred when a policy is cancelled. So it is always worth writing to the insurance companies to ask for a breakdown of the fee. If the fee is proved to be unjust or they offer "just because" as a reason, you should be entitled to a refund, if they refuse then threaten to take the matter further.
Maybe if a wave of resistance can get going, insurers might start re-evaluating their "admin fees" before they become as big a target as bank charges and PPI mis-selling. †
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NCD News: Hidden Insurance Policy Cancellation Fees - 06.12.08
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