The loyalty penalty could add £100 to YOUR car insurance costs: Two in five drivers auto-renewed last year and are likely to be overpaying for cover
- Drivers who auto renew paid a total of £720m in 2020 on their car insurance
- This is a 7% increase from 2019 when it came to a total of £674m
- The loyalty tax has led to customers paying an extra £42 a year on premiums
More than two in five drivers let their insurance policy automatically renew last year resulting in £720million more heading to insurers, comparison website data suggests.
Each year, insurers auto-renew customers who choose not to act and shop around, in what is known as the ‘loyalty penalty.’
It is estimated that around 17million did this in 2020, according to data from MoneySupermarket.
While this is roughly the same number as the year before, the loyalty penalty was found to be 7 per cent more last year meaning an average price increase of £42 – and that’s despite the cost of cover falling overall.
Drivers who let their car insurance auto-renew often pay more than those who shop around
Some 8 per cent of drivers admit they allow their insurance to renew automatically without shopping around for a cheaper deal while one in five stay with their existing provider for ease.
Some 12 per cent believe changing car insurance provider is too much time or effort whilst another 13 per cent do not believe there are significant savings to be made.
According to the research, 8 per cent saw a rise of between £76 and £100 for allowing their policy to rollover.
The Financial Conduct Authority’s transparency in insurance renewals rules that came into force in 2017 are intended to encourage drivers to shop around by highlighting their previous year’s premium price against their renewal price, alerting drivers to any increase or decrease.
Despite this, 51 per cent of drivers do not recall seeing these notifications.
Of the remaining 49 per cent that did see the notifications, 31 per cent said they did not encourage them to shop around.
The research also shows the cost of an average premium decreased by 3 per cent year-on-year, making the extra loyalty penalty even more galling.
It fell from £503 in the last three months of 2019 to £490 in the same period in 2020.
| Region | Q4 2020 cost |
| South West | £330 |
| Scotland | £377 |
| Wales | £397 |
| South East | £407 |
| East | £427 |
| North East | £449 |
| East Midlands | £469 |
| Northern Ireland | £473 |
| Yorkshire & the Humber | £526 |
| North West | £575 |
| West Midlands | £582 |
| London | £690 |
| Source: MoneySuperMarket | |
Residents of East London had the most expensive premiums in the last period of 2020 at £955 – over double the UK average.
London as a whole had an average premium of £690, over double the South West which paid an average of £330.
Meanwhile, Kirkwall in Scotland had the cheapest premiums in the UK at £269.
Kate Devine, car insurance expert at MoneySupermarket, said: ‘Letting your car insurance auto-renew almost always sees you end up paying more, with our research showing that the average premium increase last year was £42.
‘While it’s great to see that many of us are shopping around for a better deal, the number of people allowing their policy to auto-renew is still high at 41 per cent.
‘If your policy is coming up for renewal, you should always shop around to see what deals are on the market – a new deal on your car insurance is very easy to find online and could save you up to £218.’
It is worth pointing out there that some drivers will simply auto-renew in the rare cases in which the price has fallen.
Drivers can easily run a quote through a comparison website, and then take this to their current insurer to see if they can match it.
Previous research suggests renewing three weeks’ in advance to secure the best price, while finding a new policy one week, a day before or on the day of renewal will likely see drivers penalised.
Number of claims fell
Separate research from the Association of British Insurers found the number of motor insurance claims settled in 2020 reversed 19 per cent to 2.1million.
The fall reflects the fact there were significantly fewer journeys made by car in the past year.
Total payouts came to £8.3billion, a reduction of 6 per cent when compared to the previous year.
However, the average personal injury pay out rose 13 per cent on the previous year to £12,100.