The Times - UK (2022-01-01)

the times | Saturday January 1 2022 57

Money

Bye bye nasty insurers and price rises — hello fairer deals

O

ver seven years the cost of

Yvonne Allison’s buildings

and contents insurance

went from £225.42 to

£389.38. Her son Daniel,

an adviser to an oil and gas company,

felt that was ridiculous.

After a few minutes online he found

a quote for £148 with the insurer Quote

Me Happy — a 62 per cent decrease on

Yvonne’s existing bill.

“My mother had never claimed on

the policy in seven years — there can be

no justification for it. Axa just hoped

she wouldn’t spot it,” said Daniel, 50.

He complained to the Financial

Ombudsman Service, which rules on

consumer disputes, but it found that

Axa was allowed to charge existing

customers more than new ones. In fact,

this was an integral part of its business

model — and the same was true of

almost all other insurers.

Thankfully, this has now changed.

Reforms by the Financial Conduct

Authority, the City regulator, that

come into effect today mean that

insurers can no longer charge custom-

ers a so-called loyalty penalty by

automatically raising their premiums

every year, regardless of market prices.

They now have to offer them the deals

available to new customers.

The regulator says that insurers have

pocketed £1.2 billion a year by taking

advantage of loyal or vulnerable cus-

tomers who don’t shop around for a

new deal, and that the ban will save

consumers £4.2 billion over ten years.

0 What will change?

Special privileges will disappear for new

customers. Insurers will have to offer

any bonus rates to existing customers

as well, when their deals end. New

premiums are expected to rise a little as

insurers make up for lost income.

Until today’s changes, car insurance

costs had been falling slightly.

The average motor insurance

premium fell to £429 in the third quar-

ter of 2021, from £483 at the end of 2019,

before the pandemic. The price of the

average buildings and contents insur-

ance policy rose from £315 to £320.

Consumer Intelligence, an analytics

company, said that prices had been

affected by the pandemic, going down

to reflect the fact that we were at home

more and were driving less. Once the

pandemic restrictions are finally over,

we can expect insurers to rebalance this

with a rise in prices, it said.

0 Should I switch?

Even with the new rules, your insur-

ance premium may still be higher than

you could get elsewhere. And it could

still increase, perhaps because your in-

surer considers that your neighbour-

hood has become riskier to live in or to

park your car in.

You will pay more if you have made a

claim in the past year or are changing

the terms of your policy. Shopping

around for better deals is always a good

idea.

Look out for hidden policy fees.

While headline prices have been static

over the past two years, one in three

motor insurance companies, including

Admiral, Bank of Scotland, Co-op

Insurance, Lloyds, Halifax, Post Office

Money and Sainsbury’s Bank, have in-

creased the fees you pay when a policy

begins, is changed or cancelled. These

fees usually range from £20 to £60 but

can exceed £100. Experts say that many

customers do not know about them and

that they are rarely displayed promi-

nently on policies. As insurers look to

compensate for the new rules, which

may make it harder for them to attract

customers, hidden fees could become

more common, and more expensive.

0 The get-out clause

The new rules mean that insurers must

make it “easy and accessible” for cus-

tomers to cancel policies, using the

same method as they used to buy a

policy. If you bought a policy online, for

example, you should be able to cancel it

online. You should not have to ring up

so that the company can try to talk you

out of switching.

Three insurers — Churchill, the RAC

and NFU Mutual — last week provided

no way for policyholders to cancel

online. “The lengths some motor insur-

ers will go to prevent customers moving

is not acceptable,” said Gonçalo de Vas-

concelos from Rnwl, a switching ser-

vice. “When I tried to stop my car insur-

ance auto-renewal, I had to make seven

menu selections before I could cancel.”

David Byers

£320

average cost of buildings and contents

insurance from Jul to Oct last year

Energy costs

Jan Mar May Jul Sep Nov

50

0

100

150

200

250

300p

2021

Jan

2022

800

700

900

1,000

1,100

1,200

£1,300

Wholesale natural gas

(Pence per Therm, right scale)

Source: ICE markets/TheEnergyShop.com

Cheapest energy deal for households (left scale)

Price

cap limit

H

ouseholds fearing unaf-

fordable rises in their bills

this April are hoping that

the government will step

in to subsidise energy

suppliers in the face of soaring whole-

sale prices.

Kwasi Kwarteng, the business secre-

tary, met energy suppliers this week to

discuss how to limit the impact on

households of the planned raising of

the price cap in April, which will allow

suppliers to increase their variable-rate

tariffs. The cap will limit the average

annual energy cost for a dual-fuel cus-

tomer to £2,000 — a leap of more than

£700 from today’s cap of £1,277.

Wholesale energy prices have

reached new highs because of

increased demand, low gas exports

from Russia and nuclear power plant

shutdowns in France. And although

they have dropped slightly over the past

week because of the mild weather,

which has reduced consumption, they

remain three times what they were in

September. And energy analysts

believe they will rise again swiftly this

month.

With consumers already facing a

squeeze from rising inflation and wage

freezes caused by the pandemic, climb-

ing bills could come as a huge shock to

many families. So what could the

government do to help?

Subsidise energy companies

Panmure Gordon, an investment bank,

said it could cost the Treasury £10 bil-

lion to limit tariff increases to 10 per

cent — you would have to add 2p to ba-

sic rate income tax to raise £10 billion.

Giving energy companies access to a

£20 billion fund has been mooted. They

could then repay this money at an

annual rate of £2 billion over ten years.

Subsidise households

The Norwegian government is directly

subsidising the energy bills of all house-

holds in the country until March, pay-

ing half of any bills above a certain

threshold. This will cost Norway, which

has a population of 5.4 million, about

£415 million.

The same measure could be expected

to cost the UK government £5 billion.

Instead, the government could allow

energy companies to raise prices but

increase its handouts, such as the win-

ter fuel payment, the state pension and

universal credit to help the hardest-hit

households.

It will be harder to help working

families, however, who will struggle

with sharply rising bills, but who do not

claim benefits. Helping them would

require sophisticated means-testing

methods, which would be expensive to

introduce — one reason why such tests

were avoided when the government

made changes to child benefit.

MPs have suggested postponing the

Health and Social Care levy of 1.25 per-

centage points on national insurance,

which will hit most workers from April.

Scrapping levies

One option being explored is whether

households could be spared the £65

levy that was due to be added to annual

bills from April to cover £1.8 billion

stemming from the collapse of more

than 20 suppliers. Ofgem has suggested

that the levy be removed this year and

the costs spread over years to come.

Several energy companies, including

E.On and EDF, want the green levies

they pay Ofgem for investing in renew-

able technology to be suspended.

Cut VAT on energy bills

The Labour Party wants the govern-

ment to follow ten EU countries,

including Spain, Italy, Portugal and

Germany, in cutting or suspending the

5 per cent rate of VAT on household

energy bills. However, critics point out

that this would knock only £96 off a

£1,925 bill.

Longer-term solutions

Britain and much of the EU is overreli-

ant on Russia for gas supplies.

More intensive exploration of North

Sea oil and gas — including approving

the controversial Cambo oilfield near

Shetland (which Nicola Sturgeon, the

Scottish first minister, opposes on envi-

ronmental grounds) — has been

discussed.

The crisis may lead companies to

come up with better energy-storage

solutions and could also create more

leniency when it comes to granting

licences for fracking, where gas is

extracted from shale rock by injecting

water, sand, and chemicals under high

pressure. Ministers banned fracking in

2019 after a series of earthquakes

around the world and last month frack-

ing companies threatened to take legal

action over the ban.

Energy crunch: get ready to pay

an extra £700 a year on your bills

The price cap is set

to leap in April,

leaving millions with

higher costs. Will the

government step in to

help, asks David Byers

Rising energy prices may reduce objections to an oilfield planned near Shetland that is opposed by the Scottish government

Norway’s government

is paying £415m to

subsidise energy bills