FCA lays more options for exiting auto-renewals on the table

The FCA has launched new proposals that make it easier for consumers to cancel auto-renewals on their general insurance products; this is to ensure customers can benefit from competitive pricing and are not drawn in to ‘price walking’.

As part of its General Insurance pricing practices market study, published today (22 September), the FCA has announced a series of measures designed to make it easier for consumers to exit auto-renewals on all retail general insurance products, not just home and motor covers.

The regulator said: “We are concerned that some firms are using auto-renewal in a way that could discourage consumers from switching when it would be in their interest to do so. Some firms can impose unreasonable barriers on consumers exiting auto-renewing contracts, for example, requiring contact by phone rather than allowing cancellation online.”

Primarily, the FCA is asking that firms provide a multitude of easy options for consumers to cancel the auto-renewal of their insurance contract, for example via telephone, post, email or online. Additional communication methods, such as text messaging, could also be used.

The FCA added that customers should be able to utilise these cancellation methods at any point during the contract term and that these options should be clearly communicated to consumers at the point-of-sale, as well as in good time before the renewal date.

To support this measure, the FCA further aims to produce guidance on what an “easy method” of cancellation actually is.

It explained: “We also propose guidance setting out that an easy method is one that does not place any unnecessary barriers on the customer. For example, if a consumer phones a firm to stop their policy from auto-renewing, they should not face excessively long waiting times or unnecessary questions to do so. Similarly, the process for cancelling auto-renewal online or by post should be straightforward.”

Auto-renewal impact

Firms will also need to consider consumers’ financial literacy and ensure to fully explain the implications of auto-renewals.

“To guard against consumers taking out a policy that auto-renews without understanding the implications, we propose the addition of rules to require firms to explain whether a policy is set to auto-renew and what that means for the consumer,” the FCA added.

This stance is driven by findings from the regulator’s Financial Lives Survey, which showed “low levels” of understanding around auto-renewals.

The FCA said: “The main benefit of these proposals, that barriers to exit are reduced, apply across all types of general insurance. Our Financial Lives Survey has shown low levels of awareness among insurance customers about whether their policy will auto-renew. For example, 26% of respondents with mobile phone insurance and 12% of respondents with pet or home emergency insurance say they don’t know whether the policy automatically renews. As such, we think our proposals are likely to have a similarly beneficial impact on all consumers across the general insurance market.

“We also consider that the proposals have a low risk of causing harm to consumers. For example, we consider the risk that they could lead to some consumers becoming uninsured is relatively low.”

The FCA, however, is “not consulting on taking forward some of the other remedies, such as banning the use of auto-renewal”.

Despite the positive intention around fair pricing driving the FCA’s suggested changes, Mohammad Khan, UK general insurance leader at PricewaterhouseCoopers (PWC) UK, believes this could bring about price hikes for many insurance customers.

He said: “The FCA’s proposed remedies to pricing and renewal processes will reward loyal customers, but could increase the cost of insurance for others.

“In particular, consumers who regularly shop around for motor and home insurance will likely see premiums rise. For some young drivers who regularly shop around, their new annual insurance premium may rise by more than £50.”