Direct Line Group overcharged some car and home insurance customers - are you owed a refund?

Direct Line Group will pay back an estimated £30m to policyholders overcharged when renewing their car and home insurance. 

The UK's second-biggest insurer blamed the error on an incorrect implementation of the new Financial Conduct Authority (FCA) rules which stop insurers offering better deals to new customers compared to those offered to existing customers who renew. 

It's the first time a firm has voluntarily agreed to take this action after the ban on the so-called 'loyalty penalty' was introduced in January 2022.

Here, Which? explains what to do if you think you've been affected and how to ensure you are getting the best possible price for your insurance.

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Are you owed a refund?

Direct Line Group, which includes the Direct Line, Churchill and Privilege brands, has estimated it needs to pay back a total of £30m to existing customers who were overcharged when renewing car and home insurance since 1 January 2022.

This is when a new regulation came into force which bans car and home insurers from reserving their best deals for new customers.

A spokesperson from Direct Line Group told Which? it doesn't yet know how many customers have been affected but work is underway to identify everyone who was overcharged. 

If you think you paid more than you should, the firm says not to contact it at this stage. It will be in touch with an apology and the money will be refunded 'as quickly as possible'.

Which? asked Direct Line Group what it is doing to ensure this doesn't happen to customers again in future, but it was unable to provide further details.

Direct Line Group had its knuckles wrapped by the FCA in June, when the company was forced to go back through five years of motor insurance claims after admitting it underpaid some customers who had their cars and vans written off. The FCA ordered the company to review the claims after an investigation into the market. 

In our last review of the car insurance market, Direct Line earned our Which? Recommended Provider endorsement - based on high levels of cover and positive feedback from customers who had claimed. We've considered our endorsement in light of this issue and our recommendation stands.

• Find out more: best and worst car insurance companies

'Shocking' price of loyalty

The FCA's loyalty penalty ban doesn't set or cap the level of premium charged and Direct Line Group told us the majority of its customers who saw an increase in their premiums this year will be unaffected by its breach of the rules. 

The average price of car insurance has hit a 20-year high, shooting up by 21% in the past year, according to analysis by the Association of British Insurers (ABI). Home insurance has also jumped by 6% year on year. Financial pressures on the insurance market in general caused by soaring inflation and an increase in claims costs have been blamed for the hikes. 

Direct Line Group's mistake has therefore added further fuel to the fire for a group of consumers already feeling the squeeze.  

Sam Richardson, deputy editor of Which? Money, says: 'It's shocking that customers are being hit by extra, unnecessary costs, just for being loyal to their insurer. 

'The regulator should act quickly to identify and punish insurers charging existing customers more than if they were new.'

The FCA's new consumer duty will also put pressure on insurers to demonstrate the products they are selling offer fair value. 

• Find out more: the new consumer duty explained

How to get the best price on your insurance

The best way to avoid paying more than you should for insurance is to shop around.

Price comparison sites such as Compare the Market, Confused.com, GoCompare and MoneySuperMarket allow you to view multiple car insurance quotes at a glance. Just remember, not all insurers are on price comparison websites, and you may also want to get quotes directly from companies that aren't listed.

Cashback sites – such as Quidco and TopCashback – can also help you get cheaper cover. They work by paying you a cash reward when you click through from them to buy goods or financial products. 

These are worth checking out while you shop around for deals, but they won't necessarily offer you the best-value deals, even with cashback included. A £300 insurance policy with £75 cashback is far from a bargain if you can get the same cover elsewhere for £150.

Renewing early and opting for an annual policy instead of monthly could also save you hundreds of pounds. Keeping your mileage in check keeps the cost of cover down and, surprisingly, your occupation can also impact the price. One trick to potentially reduce your price – without lying – is to try and tweak your job title. For example, instead of 'barber', try saying 'hairdresser' or 'hair stylist'.  However, if you're dishonest - for example, saying you're a teacher when you're a chef - you risk having your policy voided and any claims declined. 

Finally, if you don't want to switch to another insurer, you might be able to get the price down by haggling. We surveyed 14,408 Which? members who renewed or switched car or home insurers between May 2021 and June 2022. Of the members who discussed their premium with their insurer, 48% were able to get their price reduced.

• Find out more: best car insurance companies

How to complain about insurance

If you think your insurer has treated you unfairly or has broken any rules, it may be possible to make a complaint. 

You should always try to resolve the dispute with the company first, but if after following its complaints procedure you have no joy after eight weeks and the insurer fails to provide you with a requested 'final response', the next step is to go to the Financial Ombudsman Service (FOS). 

Making a complaint to the FOS is pretty simple – just visit the ombudsman's website and fill in a short online form, including as much evidence as you can. After considering all the evidence, the FOS will write to you and the company with the decision and if there is to be an 'award'. If your complaint is upheld, this letter will include details of what the company must do to put things right.

Car and buildings insurance were among the most complained about financial products in 2022-23, according to data from the Financial Ombudsman Service (FOS) in June. The majority of grievances were related to disputes about declined claims and delays to payouts.

• Find out more: how to complain to the Financial Ombudsman Service

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