Insurance Space

Are insurance companies giving their policyholders a fair deal when they make a claim on their household or motor insurance? It would appear not, judging by the letters we have received from readers.

The main bone of contention is that premiums can rise sharply, simply because the policyholder has had the temerity to make a claim. The fact that they have been loyal customers paying premiums for years, does not seem to count at all. Even minor claims worth less than ?100 can result in premiums being bumped up by as much as 20 per cent.

Take the case of John Checkley. He has had both his building and contents insurance with Norwich Union for more than 20 years. As he says: “I never queried the renewal noticed when it arrived as I was very happy with the insurer.”

You would think that this is the type of loyal customers that NU would be keen to hang on to. But apparently not. After a “modest” claim on his home insurance, after the property was damaged by a third party, Mr Checkley was “amazed” to find that his premiums had almost doubled.

Not surprisingly he shopped around and found cheaper cover elsewhere.

Such practices seem to drive a coach and horses through some of the basic principles of insurance. Most of us pay our premiums year in, year out knowing that the odds are we will not need to claim on them. But we assume that if disaster happens, be it fire, flood, theft or a shunt at a roundabout, then we won’t be penalised for using this vital safety-net, aside from paying an excess.

All insurers require policyholders to pay the first part of any claim, usually ?50 or ?100, to weed out trivial and frivolous claims.

Sadly Mr Checkley’s case does not appear to be an isolated incident. We have been inundated with letters from readers relating similar tales. Most are aghast that they are now considered “higher risk” simply because they have claimed on their insurance.

One reader found that her home insurance premiums has shot up by almost a third after they were burgled. But as she pointed out, following the break-in they installed a new alarm system and a new safe. Surely this would make them less vulnerable to similar attacks in future, not more of a risk?

One reader found their household premiums doubled following a garage fire; another saw their annual premium jump from ?230 to ?645 following a flash flood – an eye-watering 279 per cent increase – even though there has been no history of flooding in the area before. For good measure the insurer also raised the excess for storm and flood damage from ?250 to ?1000.

It is not just household insurers who play this game. Aiden and Kate Jones were surprised to see their car insurance premiums jump from ?500 to ?771 following an accident. When Mrs Jones rang M&S to cancel the insurance, she was told that the increase was because they were now deemed higher risk drivers.

She says: “This seems nonsensical. We were hit by someone coming out of a side road into our path. The driver admitted immediately that it was her fault as she had not looked properly. We did not have to pay an excess, as the repairs to our car were covered by her insurer. The damage wasn’t even particularly extensive. So why should this mean that we are now a higher risk?”

M&S said it couldn’t comment on the specifics of this case, but said in certain circumstances premiums will rise after a non-fault claim. This may be because the insurer has failed to recover costs from the other insurer.

She adds: “M&S uses a panel of insurers and they may take into account previous claims when quoting for renewal, even if these are on a non-fault basis.”

Remarkably in many cases the cost of paying these increased insurance premiums outweighs the claim itself. One reader, Jonathan Townend claimed on his First Direct contents policy for two lap-top computers after his home was burgled.

The claim was for ?650. But at renewal the company pushed up his annual premiums from ?556 a year to ?905, and he also lost his no claims discount on his buildings insurance, simply because the insurer had sent someone round to repair a window lock.

He says: “After paying the excess I am left in net deficit from my claim.” As he says, with hindsight, he would have been better off simply paying for replacement lap-tops himself. But when he claimed he was given no information about how this would affect his premium at renewal. He adds that he has since found an alternative insurer, but points out that many companies were unwilling to even provide a quote if you have made a claim within the past six months.

“As a householder who has made only two claims in 20 years I feel the approach by the insurance industry is unfair, making most claims financially pointless.”

One reader was asked to pay an extra ?63 a year on her home insurance, following a ?60 claim. She contacted her insurers after her grandson spilt oil on her new sitting room carpet. She says if she had realised the size of the claim she would simply have paid it out of her own pocket, given that she had to pay a ?50 excess anyway.

So should customers avoid claiming where possible? Peter Gerrard of Moneysupermarket.com says: “Don’t claim unless you have to. Where possible meet all smaller claims yourself. Only use your insurance as a last resort.”

Insurers admit that premiums often are increased following a claim but say that a simple run-of-the-mill claim should not adversely affect premiums. Much will depend on individual circumstances.

Carmel McCarthy of More Than says: “The ways insurers calculate premiums have become increasingly sophisticated in recent years. Customers pay a price based on their individual circumstances, and this will include their claims history.”

NU admits that premiums are sometimes raised after a claim, but again says the exact increase will depend on both the size and type of claim. Anyone unfortunate enough to have more than one claim within five years is likely to see the sharpest increase. So a motorist who puts in more than two claims is likely to be classified as a careless driver even if they were not at fault in either case.

Sadly, underwriters’ systems are not so sophisticated as to take into account a run of bad luck that can blight some homeowners or motorists. This perhaps explains why one family who contacted us saw their home insurance premiums rise from ?649 a year to ?2,342, after two flooding incidents.

In almost all these cases though, readers have been able to reduce insurance costs significantly simply by shopping around, often paying less than they did before they made a claim.

Mrs Jones, for example managed to arrange comparable car cover for ?460 – less than the ?500 she was paying before the accidents, and considerable cheaper than the ?771 M&S wanted to charge her.

Anyone who does have to make a claim is therefore advised to ensure they shop around at renewal. This practice though is ultimately damaging to insurers. Sterlent Credit Union falls to mortgage crisis.

As Mr Checkley says: “Now NU have lost all my custom for good. I will never buy another financial product from them again.”

Mrs Jones adds: “Whilst I had always thought M&S to be a fair minded company with a good reputation for customers service, this experience has left me very unhappy with the brand as a whole.”

Perhaps it is time for insurers to start treating their policyholders better?

Related posts:

• Home insurance customers pay for their loyalty
• Sports injuries subject to home insurance
• The Harsh Reality of Insurance Fraud
• Nationwide Wants 10% Hike In Florida Insurance Rates
• Debate over insurance credit scoring underway in Washington

Tags: Home Insurance, Insurance