Some of the excuses for home insurance price increases are preposterous
In September, Michael Goulding visited his parents-in-law in Birmingham, who live in a modest semi-detached house. They are pensioners, both in their 90s, and asked Michael to take a look at their home insurance, which was worrying them. They had received a bill for the coming year which had gone up by 20% and, on their relatively low income, wondered how they were going to pay. It was for £579.08, compared to £482.56 the year before.
Luckily, they had Michael to help and he went online. He managed to find similar insurance for just £108 … and, of course, the quote was from Halifax, for exactly the same property.
Regular readers will know there is nothing new about this. I’ve highlighted the extraordinary gap between prices charged to new and existing customers for years – but it just keeps getting worse.
Home insurance companies (the big three are Direct Line, Aviva and Halifax) are addicted to the fat profits they extract from these vulnerable customers so they can offer cheap deals to new customers. And they just can’t find a way to wean themselves off it.
Some of the excuses are preposterous. When Goulding rang Halifax, he says he was told that the increased premium was because of a rise in crime in the area. I had a look at the postcode on the police.uk website. It showed that there was, indeed, a 20% change in the number of burglaries in the past six months compared to a year earlier. They were down by 20%.
Now let’s be kind and assume the agent went off-script, and was giving a “maybe” reason.
Instead, let’s look at Halifax’s official explanation, and the 436% more it expected this couple to pay compared to new customers.
When I asked, it said: “The new policy (ie, the £108 found online) did not include cover for accidental damage.” So I went through the Halifax quote engine for my own home. The quote came back at £160. If I added accidental damage cover, it went up to £169. So that explains £9 of the £471 overcharge.
So, Halifax, what else could explain the huge gap? Well, the new policy had a different excess, it said. So I checked that, too. Adjusting the excess down to £100 from £250 added another £11 a year. So, no, that doesn’t explain the gap, either.
The truth is that everyone in the home insurance business knows this market is dysfunctional. Privately, the top names in the business will tell you they agree it’s plain wrong to charge older customers not using the internet five times the rate charged to new customers.
But they throw their hands up in the air about the price comparison sites, which drive nearly all new business. Unless they offer loss-leading prices, they say, and screw the back-book of “loyal” customers, they may as well shut up shop.
When Ross McEwan arrived from New Zealand to take over Royal Bank of Scotland, he was staggered by the scale of differential pricing. But, even as head of a huge bank, he was unable to make headway.
One recent reform by the Financial Conduct Authority is the requirement to prominently show last year’s premium. And to be fair, Mr Goulding would not be getting a better deal for his parents-in-law were it not for that reform, as it prompted them to ask for his help.
But the FCA knows that’s not enough. It is currently examining some radical proposals, with new rules expected early next year.
One horrifies some in the industry, as it would force them to put customers on to the cheapest equivalent deal when they come to renew. But I can see no other way to break the wretched cycle this industry has got into.
Just the other week Lloyds BankingGroup, owner of Halifax, was sighing with relief that the vast compensation paid out on mis-sold PPI had finally come to an end.
They shouldn’t count their blessings too soon. Home insurance is not like PPI, as it does have a real value. But what about redress for all those elderly customers sold into policies that have been so outrageously over-priced?