Car insurers are pocketing a massive £333 million every year by charging customers exorbitant fees for basic administrative services.
Customers are being forced to pay on average £17 just to amend a detail on their policy – such as their name or address – and nearly £12 for a duplicate document, according to uSwitch.
AA is the worst perpetrator, charging a massive £25 for either of the above ‘services’, although Hastings charges nothing at all.
Cancellation fees are another cause for concern, with some big name insurers – including Prudential and Churchill – having no upper limit on the amount they will fine a customer for leaving (this is usually calculated as a percentage of the remaining premium).
System wide open to abuse
The reason for the sky high cost and massive price difference between insurers is a lack of regulation. Without going into the technical details, the Financial Services Authority (FSA) removed an important section of the Insurance Code of Business (ICOB) three months ago, essentially giving insurers free reign to set fees and charges at any level they wish.
Why would the regulator do this? It claims the rule it removed serves no purpose as it has never needed to investigate a company for excessive charges. Well, some customers might argue that £25 to update their name on a file may seem a tad excessive.
We have all seen what happened with the bank charges furore, where banks were allowed to set their own fines, and it seems many insurance companies are getting on the act too, as the table below shows.
Administration charges from the top ten insurers (based on marketing spend)
| Insurer | Adjustment Fee | Duplicate Documents Fee | Cancellation Fee |
| Norwich Union | Up to £12 | £0 | Up to £52.50 |
| Direct Line | Up to £17.85 | £0 | Unlimited |
| Churchill | Up to £21 | Up to £21 | Unlimited |
| AA | Up to £25 | Up to £25 | Up to £75 |
| More Than | Up to £26 | Up to £25 | Up to £55 |
| Hastings | £0 | £0 | £0 |
| Prudential | Up to £15.75 | £0 | Unlimited |
| Esure | Up to £17.50 | Up to £17.50 | Up to £45 |
| Sheilia's Wheels | Up to £17.51 | Up to £17.51 | Up to £45 |
| Swiftcover | £0 | Up to £10 | Up to £25 |
| Average | Up to £16.84 | Up to £11.60 | Up to £38.33 |
Source: uSwitch.com February 2008.
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Set things right
In order to rectify the situation, the FSA is being called on to restore the section of regulation protecting insurance customers from ‘excessive charges’.
“Without any regulation existing in the market around fees, the insurance industry can charge what they like,” says uSwitch insurance expert Ashton Berkhauer. “It is vital that consumers are made aware of these fees and that the insurance industry is made to review and justify their validity.”
If your situation has changed and need to make a “mid-term adjustment” to your car insurance policy, it's important you don’t let the fees put off. Costly though they may be, not doing so could invalidate your cover entirely.
Besides which, you may actually end up getting a cheaper premium in certain instances, for example if you moved to a far safer neighbourhood, or stopped driving to work.
