Categories
Financial issues Latest News

Regulator slowly, finally makes moves to resolve major insurance market issues

FCA tackles the insurance penalty – at last!

The Financial Conduct Authority (FCA) has announced today that it will reform home and motor insurance, focussing particularly on the current “loyalty penalty” that punishes existing loyal clients’ premiums and favours new clients.

The FCA found in 2018 that some 6 million policyholders were paying high or very high margins over and above an average premium. Had they have paid the average for their risk, they would have saved £1.2 billion!

The FCA has published a 31-page report on the insurance market and finally (two years later!) announced a consultation on the following:

  • Product governance rules requiring firms to consider how they offer fair value to all insurance customers over the longer term.
  • Requirements on firms to report certain data sets to the FCA so that it can check the rules are being followed.
  • Making it simpler to stop automatic renewal across all general insurance products.

“The FCA is proposing that when a customer renews their home or motor insurance policy, they pay no more than they would if they were new to their provider through the same sales channel.”, says the regulator’s announcement today.

If the proposal goes ahead it is estimated that £3.7 billion would be saved by insurance customers over 10 years. Methinks the insurance companies won’t like these proposals!

Loyalty Super Complaint

The FCA’s action originates in September 2018, when the Citizen’s Advice Bureau launched a  “Super Complaint” calling on the regulator to look into how consumers are being penalised for loyalty in 5 key sectors. It requested an outline from the CMA on what action would be taken to resolve the problems.

CAB launches super-complaint into penalising loyal customers

FCA Consultation on insurance prices

The FCA’s consultation is open until 21 January 2021, to be followed by analysis of feedback and a Policy Statement, with new rules due later that year. We’ve all known that these practices have been going on for years and the Super Complaint was made two years ago. It beggars belief that it will be three years from this complaint before something is done.

FCA dragging its feet

In a statement made in September 2018 the FCA said

“In the FCA’s 2018/2019 Business Plan we announced that we were looking at the pricing practices of general insurance firms. As part of that work we will launch a market study looking at how general insurance firms charge their customers for home and motor insurance. The terms of reference for this market study will be published in a few weeks’ time.”

So, why has it taken so long?

In the meantime here are the measures you can take to ensure that you are not losing your share of the 1.2 billion that insurance companies are overcharging their loyal customers!

grid of 4 cars

 

See How to save money on your car insurance

 

 

 

 

See How to save money on insurance and beat the tactics used to make you renew a story of how to get round the company wanting to make you phone to cancel a renewal…

How to save money on insurance and beat the tactics used to make you renew

Categories
Financial issues ways to save money

Why motor legal protection is a rip off and the free alternative

Motor legal protection why you don’t need it as part of your insurance policy

I have asked Lee Jones from Free Motor Legal Ltd to explain Motor Legal Protection, how it works (a sham) and some more about his site. Read on and save yourself £30 a year.

What is motor legal protection?

Motor legal protection (MLP) is also known as legal expenses insurance. In the UK, policies covering motor legal expenses insurance are usually sold alongside the main motor insurance policy as an “add-on”. The typical premium is around £30.00.

The general purpose of the policies is to allow access to legal services and cover the fees of the appointed lawyers after a collision which was not the fault of the policyholder in order to recover any losses and expenses and/or compensation for personal injuries.

The policyholder does not get a choice of the lawyers, these will be appointed by the legal expenses insurer and, in order to receive any advice or assistance, the policyholder must have a claim with “reasonable prospects of success”. In other words you need to have a better than 50% chance of succeeding with your claim, otherwise assistance under the policy will be denied.

So where is the motor legal protection sham?

The cost of legal protection for motors

As advised, they generally retail at around £30.00, but the actual net cost to the insurer, broker or price comparison site you are buying the cover from can be as low as £0.50p, yes 50 pence! It has even been known for some brokers and insurers to get the underwriting for free as the service providers used will pay for the underwriting in order to secure the deal. But let us assume the cost is 50p per policy. When that is retailed to the customer for £30.00, it amounts to a mark-up of 6000%. Now that is a pretty ridiculous profit margin for any business, yet we allegedly have a fiercely competitive insurance industry which favours the consumer according to the trade body for UK insurers, the Association of British Insurers.

The fact is, aside from a small handful of standalone providers who retail the policies at a lower amount, the premium of around £30 per policy has become somewhat standard and few, if any insurers want to cut each other’s throats with a race to the bottom when it comes to the price of the add-ons. They can often make more profit from the sale of the add-ons than the actual motor insurance policy itself.

decorated car with added partsRestrictions on motor legal protection policies

which cause households and businesses with more than one vehicle to have to purchase Motor Legal Protection several times over. The general policy wording states that assistance will only be given for claims arising out of the use of the vehicle insured under the main motor policy. So an example would be a household with say 2 vehicles. Husband has a car insured in his name with the wife as a named driver on his policy. He purchases legal expenses cover on top of his policy. The wife has her own car and insures it in her name with the husband as a named driver, but she does not take out legal cover.

If the wife had a non-fault accident in her own vehicle, she could not use the husband’s legal cover to seek recovery of any losses or expenses or claim any compensation if she suffered injury. She would have to either try and claim for these losses by herself, or end up instructing a solicitor under a no win- no fee agreement, which would see her most likely lose 25% of any awarded compensation to the lawyer in “success fees”.

So the insurance industry has this area well and truly sewn up when it comes to households and businesses with more than one vehicle needing to buy this product several times over.

For private cars alone, excluding motorcycles and vans, using Department of Transport figures, there are over 30 million registered cars on the UK roads. For the owners of those vehicles to have motor legal protection covering each vehicle at a cost of £30.00 each, that amounts to £900 Million in premiums! Did we mention that 6000% mark-up? Plus if you add on motorcyclists and van/ light commercial vehicles, the figures are staggering, well over £1billion in premiums.

blue beetle car

OK so the mark-up is a bit rich, but you said it was all a sham

Well yes it is really, because working behind the scenes for 20 years dealing with motor claims litigation for both insurers and independent solicitors has revealed that the policies never truly get “used” or seldom pay out any legal fees and disbursements.

What this means is that the insurers do very little other than earn money from selling the policy, but they get an extra slice of income if the policyholder has a non-fault collision resulting in the need for a replacement vehicle to be provided (credit hire car) or if they suffer personal injury and make a compensation claim.

The reason for this is that for decades, legal expenses policies have just been used as “claims capture mechanisms” in order to refer customers needing vehicle repairs and hire to credit hire companies and for personal injury claims to be referred to a panel of law firms. When this happens money changes hands in the form of referral fees previously and now “marketing fees” or profit shares. These get passed back to the insurer, broker or price comparison site you purchased the policy from. So a nice little earner selling the customer a policy at a ridiculous mark up and then another earner if the customer calls them after a non-fault accident.

The legal expenses insurer can then just sit back and do nothing as the law firms who are on their panel of approved firms have usually agreed never to claim against the policy, even when a case has been lost and they are out of pocket for fees and expenses. Put simply, for the lawyers, the good cases cover the cost of the ones which do not succeed.

This all happens under the veil of the clause in the legal expenses policy which states that cases must have “reasonable prospects of success”. This allows the law firms to vet cases they wish to take forwards and those which they do not. If the case looks like it is lacking in evidence or prospects of success, the law firm can just use the “reasonable prospects” clause to state that an indemnity under the legal policy will not be granted and therefore they do not take the case forwards. On cases which succeed, the lawyers get paid their fees by the insurance company of the at-fault third party motorist.

So this leaves the legal expenses insurer in a situation where they do not need to pay any legal fees, despite the policies often providing “£100’000 of legal expenses costs” because, if the case is no good the lawyers will just not take it forwards and therefore no legal fees will arise. On the cases they win, they will be paid by the third party insurance company, again causing no legal fees to be paid by the legal expenses insurer. If the appointed lawyers lose a case, they have often agreed not to bother the legal expenses insurer and therefore just have to absorb the costs. Either way, there are no panel lawyers knocking on the door of the legal expenses insurer for payment of costs.

Some years ago, the Financial Conduct Authority wished to explore more ways for customers to see the value of the “add-on” insurance products they often purchase, such as motor legal protection. One suggestion was for such insurers to publish payment details of how much and often they had made payments under claims against their policies.

The mouthpiece for the UK insurance industry, The Association Of British Insurers (ABI) were quick to jump in and allege this would not show people the value of such policies and the FCA immediately backed down, duly issuing guidance for a very watered down selection of insurers providing cover for mobile phones to publish such information. Why was this?

Well, in our view, this was because it would quickly expose the racket that was motor legal expenses insurance by proving our experience that these policies cost the insurers almost nothing to underwrite, are sold at a vast mark up to the consumer and then rarely ever incur any financial outlay due to the law firms they instruct agreeing never to seek payment of any fees from them.

car text- How to protect yourself from the motor legal sham

About Free Motor Legal Limited

On seeing how the industry really worked behind the scenes, I chose to do something about it and founded Free Motor Legal Ltd, providing British motorists with a free alternative to paying for motor legal protection.

The company was founded in 2012 and allows motorists in England, Scotland and Wales to register for free lifetime membership, shaving that extra £30 a year off their vehicle insurance costs, whilst providing the same basic assistance after a non-fault collision.

The membership is just tied to the member themselves, rather than operating around the use of just one vehicle, so households with more than one vehicle enjoy greater savings.

Free Motor Legal arrange for replacement vehicles and repairs to be carried out without the member needing to claim through their own insurance policy, avoiding the need for any excess to be paid as the costs of repairs and replacement vehicle hire are met by the insurers of the party at fault.

If other losses arise such as lost earnings, medication costs, travel expenses or compensation for personal injury, Free Motor Legal will arrange for one of their panel solicitors to be appointed and these losses pursued from the insurer of the at-fault third party. There is no deduction taken from the awarded losses and compensation and the costs are met by the insurers of the third party.

Like the paid for products offered by the insurance industry, Free Motor Legal Ltd do receive commission payments from some of their service providers, such as hire companies, but they do not charge their members £30 a year to simply pass their details onto lawyers and stand back.

I am not Martin Lewis www.freemotorlegal.co.uk

Note from me! I’ve done it and you don’t even have to remember to renew! It’s there for life!

Tips for saving money on car insurance

 

 

See How to save money on your car insurance for more ways to save.

 

 

 

The importance of switching energy suppliers and telecom providers on ITV News

About Lee Jones

Lee Jones, aged 43 has been married 17 years to Michelle. They live in Norfolk with a dog and cat.  They relocated from York after Lee was diagnosed with Stage 4 Bowel cancer in Jan 2017 and is on long term palliative care.

Lee worked for law firms and major insurers  as a litigator since the early 90’s.  He started working in criminal law and was a police station adviser duly advising clients in police custody and assisting in Crown Court trials. He then worked for Norwich Union in their in-house legal dept in 1997 until 1999 defending claims against their policyholders. Thereafter he has worked for several Claimant law firms dealing with road accident claims since 1999 until setting up Free Motor Legal, after realising that he could help motorists gain the same services without needing to buy a motor legal protection policy.

Logo cartoon cow at a laptop of book cover. How to Complain: The Essential Consumer Guide to Getting Refunds, Redress and Results!

 

If you have any problems with car insurance or most other sectors GET THE BOOK! How To Complain: The ESSENTIAL Consumer Guide to Getting REFUNDS, Redress and RESULTS!