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Car insurance auto-renewal trap costs drivers £1.4bn a year: are you affected?

Drivers lose billions in savings

Car insurance auto-renewal trap costs drivers £1.4bn a year: are you affected?

Around five million drivers in the UK are still allowing their car insurance to automatically renew, instead of shopping around for a better deal, costing motorists £1.4bn a year, according the latest research from insurance comparison site GoCompare. 

Auto-renewal allows you to be automatically signed up to a new insurance policy when your existing one comes to an end. Generally, these policies have a higher premium than if a customer looked elsewhere for a policy.

In April 2017, the Financial Conduct Authority (FCA) implemented new rules, which required insurers show the previous year’s premium on renewal letters – showing how much extra they’d pay by automatically renewing instead of switching or haggling for a cheaper deal. .

With September historically being the busiest month for car insurance purchases and renewals, due to new car registrations, drivers across the nation could see a dramatic difference in the cost of their policies depending on whether they shop around or not.

Should you auto-renew your car insurance?

Drivers who allow their car insurance to auto-renew almost always end up paying more for their policy than if they had shopped around.

In second quarter of 2018, the cost of the average car insurance policy fell by £67, compared to the same time the year before, according to research by Moneysupermarket.com.

Those who did not look for a new policy when their car insurance came up for renewal would have missed out on savings.

Since the FCA’s rules were implemented, drivers have reported seeing more information about their renewals, according to GoCompare.

The price comparison website found that 46% of drivers now report seeing their previous year’s premium displayed on their renewal letter, compared to 38% in February this year.

But it said that ‘16% of drivers are still allowing their insurer to automatically roll them over for another year without first checking if they could get a better deal, and this is costing them a whopping £1.4bn a year.’

This suggests that a greater number of drivers are aware of how much more expensive their premiums are at renewal, giving them the chance to find a better car insurance deal.

Some insurers, such as the RAC and Admiral have been named and shamed by the FCA for not following the new rules.

Is car insurance auto-renewal legal?

Insurers can legally auto-renew your car insurance policy, so long as they communicate it with you.

It’s common practice among providers to ensure that drivers don’t risk driving uninsured.

Driving on a road or public place without at least third party car insurance is illegal and if you get caught driving without insurance, you’ll be given a fixed penalty of £300 and six penalty points.

Worse still, if your case is escalated to the courts, you could also get an unlimited fine and be disqualified from driving altogether.

In some instances, the police also have the power to seize – and in some cases destroy – the vehicle that’s being driven uninsured.

Some car insurers will allow you to opt-in to having your policy automatically renewed when your policy comes to an end.

Others may automatically renew your policy as standard and those that do, have to clearly communicate that to you before you take out a policy.

Auto-renewal: what insurers say

A spokesperson from the ABI told Which?: ‘Insurers are not legally obliged to renew a motor insurance policy, but drivers are legally obliged to be covered for their legal liability towards third parties.

‘Not all insurers automatically renew your policy, but those that do will ensure that all documentation clearly states that this will be the case – and do so to prevent anyone from inadvertently driving uninsured when their policy expires at the end of the year.’

We also spoke to insurers about why they think auto-renewal is a good idea.

‘Auto-renewal is convenient for customers and gives them peace of mind,’ Heather Smith at insurer LV told us.

‘It’s particularly useful for motorists who would be breaking the law if they did not have adequate car insurance. Customers have a choice about how to pay and whether to sign up to auto-renewal. We clearly explain this at point of sale and in their documents.

‘We also send a renewal invitation to customers three weeks before their renewal date, which includes the price and confirms if we’ll auto-renew their policy. In the renewal invite we make it clear that the customer can choose to cancel the insurance if they wish by calling us.’

Can I cancel my car insurance if it auto-renews accidentally?

If your car insurance automatically renews without you intending it to, your ability to cancel will depend on your insurers terms and conditions, which will outline any fees and charges you’re liable to pay.

When you first buy car insurance, or when it auto-renews, you’ll have a two week ‘cooling off’ period to change your mind and cancel your policy – usually without paying a fee.

If you cancel your policy outside of the cooling off period, it is still possible to cancel but you may be liable to pay fees or charges for cancelling early.

Finding the best car insurance deal

Whether you’re looking for your first policy or hoping to renew your car insurance, these tips will help make sure that you get the best deal.

Shopping around can really help you save hundreds of pounds on the cost of your car insurance.

Price comparison websites can be handy when looking for a dea,  but avoid simply going for the cheapest policy, as it may not give you the right level of cover.

Make sure that you read the terms and conditions of any insurance policy before you buy and get in touch with the insurer to clarify anything that’s unclear.

Being tactical about the time of year you buy car insurance can also help you save money too.

Research shows that February is the cheapest month for car insurance, whereas, December is the most expensive for car insurance.

For more tips check out our car insurance advice guide and check out the short video below too.

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