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School of Law's Professor Christian Twigg-Flesner comments on 'costly trap' of insurance policy auto-renewal

An interim report by the Financial Conduct Authority (FCA) has estimated that millions of consumers are overpaying on insurance premiums by remaining loyal to their provider and not shopping around. Professor Christian Twigg-Flesner from the School of Law has highlighted how auto-renewal of policies can be used by providers to their own advantage.

He said: “Today’s FCA interim report highlights the detriment caused to consumers who, for whatever reason, rely on auto-renewal for their motor and household insurance policies rather than shopping around as their existing policies expire. The availability of increasingly complex data-sets to gauge a customer’s likely attitude towards auto-renewal allows some insurers to charge consumers significantly higher premiums when they auto-renew compared to a new customer taking out an insurance policy on the same terms. With many consumers having limited financial resources at their disposal, auto-renewal can become a costly trap. In addition, may consumers may lack the time, the patience and the ability to shop around for the best price.

"The FCA has proposed a number of remedies to address this problem. Restricting pricing practices, such as prohibiting “price walking” (offering new customers a high discount which is then recouped by disproportionate increases in premiums at auto-renewal) and restricting the use of factors which can be taken into account in calculating the renewal premium is one option. However, as there are a wide range of factors fed into increasingly complex data-processing algorithms, this could become difficult to monitor. The FCA also suggests that insurers could be obliged to transfer auto-renewal customers to cheaper policies after multiple renewals. This is something which might be of greater help to many consumers. Furthermore, controlling the use of auto-renewal mechanism by requiring express consent, proper notification before the expiry of the current term, and a prohibition of auto-renewal onto a further fixed-term have the potential of improving the position of consumers. More interventionist suggestions, such as requiring customers to opt into auto-renewal, could also help; however, banning auto-renewal altogether could result in consumers being without any insurance, which would be unlawful in the case of motor insurance.

"What this interim report highlights is the harm which can be caused to consumers by auto-renewal practices. Insurance policies have long been highlighted as a negative example of these practices. However, with auto-renewal being a common feature in many other contexts, such as subscription services, it might be something that ought to be considered more broadly so as to improve consumer protection in other situtations where contracts are subject to auto-renewal.”

4 October 2019

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