Stop the Insurance rip off

I have a confession to make. I spent my entire career in the insurance industry and was, until my retirement, a Fellow of the Chartered Insurance Institute. It therefore shames me to see the industry - we used to call it a profession, although this is no longer the way it seems to behave - failing to treat customers fairly.

Treating Customers Fairly (TCF), as it was called by the Financial Services Authority, before it went through one of its regular transformations to become the Financial Conduct Authority, was once the fundamental rule for all financial services companies. It was their responsibility not only to fulfil their contractual obligations, but also to do so in such a way that was fair to customers. Relying on small print to avoid claims was not within the spirit of TCF; whether insurers still do so in order to wriggle out of paying up will be something people will only know from personal experience.

But if insurance companies still seek to treat their customers fairly, why we are now reading in the newspapers that insurance companies are:

(a) Ripping off customers (according to Which?) with exorbitant fees for making minor alterations to motor insurance policies; and

(b) Charging more to long-standing home insurance policyholders than for new customers?

Fees for making alterations to policies are not new. They come from a time when commission rates were 10% and premiums relatively low. This meant that brokers and other intermediaries made only modest amounts of money on each policy and therefore had to make a charge for alterations to ensure they were not operating at a loss. The introduction of direct dealing and much greater automation, particularly over the internet, should have seen an end to this practice. If it has not done so, we can only assume someone is making far higher profits than was once the case. I cannot imagine that this is professional intermediaries.

Charging more for existing customers is far more confusing to me. When I did my professional exams, during the 1970s, we were always told that it was cheaper to retain existing customers than to attract new ones; yet here we seem to see the reverse philosophy being implemented; new customers apparently being 'better' than old ones.

Some of the reason for this no doubt comes from the way sales targets are measured; new sales are counted while renewals are not, which means any company having a high renewal rate, but fewer new sales will look as if it is performing more weakly than one with the reverse experience. Yet given the cost of acquiring and processing new business - advertising costs, processing and underwriting expenses, the cost of setting up initial records, and so on - this is unlikely to be true.

What seems to be happening, is that inertia is being relied upon to allow insurance companies to make greater profits from loyal customers.

As I said, this shames me on behalf of my former employment; insurance, one of the leading invisible exports we have, should serve its customers better.

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Stephen Phillips is a member of the Shepway Liberal Democrats, and his views are not necessarily those of the Party. He has been writing professionally for many years on investment and economic related issues, and has focussed recently on creative writing.

You can find Stephen online at www.phillips-writer.co.uk