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Direct Line will pay £30 million in compensation to customers who were overcharged when renewing their car or home insurance.
Direct Line Car Insurance: A Closer Look At Coverage Options
The insurer has admitted a “mistake” in implementing the financial watchdog’s new pricing rules that came into effect in early 2022.
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This means existing insurance customers are being charged more for their renewal than new hotline customers, the Financial Conduct Authority (FCA) said.
The FCA introduced new rules last year that prevent home and car insurance renewal customers from being charged higher rates than they would be quoted through the same channel for a new customer.
“An error in the application of these rules resulted in the calculation of the equivalent value of new business for some customers in breach of the rules,” Direct Line said.
Direct Line did not say how many people it expected to receive compensation, but estimated the total payout to affected policyholders would be around £30m.
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According to the PA news agency, customers who have renewed their policies since the FCA’s pricing rules came into force will not have been charged more.
At a time when car and, to a lesser extent, home insurance premiums are rising, with insurers blaming the rising cost of claims, it is shocking that customers are being burdened with additional and unnecessary costs as they Are loyal to the insurer.
Direct Line said it would contact affected customers directly and customers do not need to do anything themselves at this stage.
The insurance giant raised the prices of all its auto and home policies this year as claims costs rose.
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The average engine renewal premium by early 2023 increased by almost a fifth, 19%, year-on-year.
On Wednesday, the group said it had appointed Adam Winslow from rival Aviva as its new chief executive and he will take over in the first quarter of 2024.
Sam Richardson, deputy editor of Who? Money said: “At a time when car and, to a lesser extent, home insurance premiums are rising, with insurers blaming rising claims costs, it is shocking that customers are facing additional and unnecessary costs. That’s simply because they are loyal to their insurer.
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Auto insurance premiums have increased nearly 50% in the past year, with younger and older drivers hit hardest.
Exclusive data from analyst Consumer Intelligence, which analyzes prices from Confused.com, GoCompare, CompareTheMarket and MoneySupermarket, shows average premiums are set to rise by an average of 48 per cent in the 12 months to June 2023. Insurance premiums are now at their lowest level. Highest since early 2018.
Car insurance is rapidly becoming one of the most expensive household bills, causing more financial trouble in a time of high inflation and rising mortgage and rental rates.
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In June, economists Ernst & Young warned that 2022 was a tough year for insurers and predicted premiums would rise 16 percent by the end of 2023. But the latest figures show that they have already increased four times.
David Trainor, 67, was shocked to learn last month that Azure was increasing the annual premium for his Renault Clio from £283 to £547 – a 93% increase. “I expected a small increase due to inflation, but not 93 percent,” he said.
According to Consumer Intelligence, people aged 25-39 and 65 and older have been hardest hit by car insurance increases, with average premiums increasing by more than 50%. Drivers in Scotland and London have seen their premiums rise the most.
This comes despite executives of the top five companies receiving six- and seven-figure salaries and bonuses last year. Admiral Group paid Focatis chief executive Milena Mondini a total of £2.15m and finance director Geraint Jones £1.23m, while Aviva chief executive Amanda Blank earned £5.52m.
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That “cost inflation will be a factor, but it cannot explain the 48 percent [overall increase].” He said lack of transparency in the risk models of insurers and increase in claims after the pandemic are also possible reasons.
But he acknowledged there may not be much that can be done, adding: “I’m not sure what the regulators can do, because their latest interventions have generally resulted in premiums going up for most people. Used to shop diligently to take advantage of pricing – they can no longer afford the initial offers.”
The Financial Conduct Authority (FCA) said rising repair costs have pushed up car insurance prices, but Tim Kelly, insurance expert and owner of motorclaimguru.co.uk, says some insurers are looking to boost profits after the Covid pandemic. The prices were increasing.
“There’s a lot of smoke and mirrors. Insurers made huge profits through Covid. We have now come out of Covid in a very different economic environment, with insurers wanting their profits and not absorbing the rising costs of inflation. “Ultimately, consumers are the losers and insurers are the winners,” he said.
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An FCA spokesperson said: “We will continue to monitor the market to ensure that customers are treated fairly by their suppliers.”
Insurers say the main culprit is inflation. Rising energy bills and rising costs of paint and materials have led to an increase in repair costs, which have increased by 33%, according to the Association of British Insurers. The cost of courtesy cars is rising by about 30%, he said, while inflation has also increased the cost of personal injury claims.
Catherine Carey, head of marketing at Consumer Intelligence, said: “As a result of this inflation and delayed premium increases in 2022, the car insurance market has reported huge losses. Insurers are looking to offset these losses and reflect the ongoing impact of inflation. “Prices are being adjusted.” ,
Meanwhile, the cost-of-living crisis has seen an explosion of insurance fraud. Car insurance fraud was the most common type of opportunistic fraud reported to London Police’s Insurance Fraud Enforcement Unit between March 2022 and April 2023.
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“By inflating claims or providing false information when applying for insurance, fraudulent customers drive up the cost of insurance for everyone else,” Carey said.
Another factor is changes in regulation. The so-called loyalty penalty was banned as early as 2022, meaning insurers must not charge new customers more than existing customers.
Chart using data from four major comparison sites shows sharp rise in car insurance premiums over the past year
According to James Daly, chief executive of consumer group Fairer Finance, this has pushed up prices for everyone, especially those looking for a cheaper policy each year.
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“Premiums have been driven up by two main factors: inflation and changes in regulation. The cost of car repairs and parts has gone up like everything else in the past year, and the cost of personal injury claims has also gone up. It All that does is increase the cost of insurance,” he said.
Experts say that behavioral changes are also having an impact. Two years ago, the number of accidents was lower than usual due to fewer people driving during the pandemic. But now that people have returned to their normal routine, the number of claims is rising again, and so are the premiums.
The increasing number of electric vehicles may also play a role, as repairs can be much higher than for a standard car. Insurer LV said that “new high-tech vehicles equipped with sensors, cameras and high-voltage systems increase the cost of spare parts and also require specialist work to install them”.
Direct Line said it priced customers’ policies “based on our view of risk, the rating factors we use, and inflation.”
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Those aged 25 to 39 and those aged 65 and over have been affected by the highest levels of car insurance inflation, with average increases of 52% and 50% respectively.
Under-25s, who traditionally have the most expensive premiums, have seen the lowest increase at 38%. This may be due to the availability of telematics policies, which record drivers’ speed and braking distance to assess crash risk, and have locked in prices for young drivers.
Motorists may also experience increased prices due to where they live. London and Scotland have seen the biggest increases, with new policy prices rising by 53%. The Northeast had the lowest average increase of 43 percent, followed by the North-West at 45 percent.
However, an analysis of the first five quotes was returned
