Is your insurance a waste of money?

A few years ago, the Financial Services Authority, the City watchdog, came up with a "radical" initiative for its member companies called Treating Customers Fairly.

For those of us in the real world the notion that financial companies can benefit by being nice to their customers is hardly groundbreaking.

But the bosses of many banks and insurance companies still seem to be having trouble grasping the point.

Every week on Sunday Times Money we are besieged by emails and letters from readers who have been ripped off, misled or generally treated badly by their bank or insurer.

The sale of insurance is a particular bugbear. Banks and insurance companies still seem intent on selling us unnecessary cover simply to boost their profits.

Take the £270m a year motorists pay to cover personal injury claims. According to Accident Relief Campaign, a drivers’ charity, this cover is useless and goes straight into the pockets of the insurance companies.

Then there is mobile phone insurance. Last week Halifax Home Insurance warned that mobile phone theft costs Britons £390m a year, with a phone stolen every 12 seconds.

So that means that we should all take out mobile phone insurance, doesn't it?

Well no it doesn’t The truth is that mobile phone insurance is an expensive rip-off

Mobile insurance fees of £7.99 to £9.99 a month are standard, adding up to between £95.88 to £119.88 a year. You pay even more for world cover.

But many of these policies offer little protection and are so riddled with small print that they are almost impossible to claim on.

And don’t get me started on payment protection insurance (PPI). Sold alongside loans, credit cards and mortgages, it is pushed aggressively by the high-street banks because it is a fantastic money-spinner – for them.

Morgan Stanley, an investment bank, estimates that up to a fifth of banks' retail profits are generated by PPI sales.

The insurance can add thousands of pounds to the cost of your borrowing, but the benefits are dubious because the policies are generally littered with exclusions. Figures from the Office of Fair Trading show that firms offering PPI pay out in claims only about 15% of the amount they make in premiums, compared with 74% for motor cover and 55% for home insurance.

Does that sound like they're treating customers fairly?

Comments

[Samuel Bowen]

Whilst I agree with the main body of your article that most personal injury claims are on a no win no fee basis, this is not all that is paid for with the additional premium. It also covers drivers for their uninsured losses in the event of an accident. Where someone is involved in a non-fault motor accident they will still have to pay their excess under their motor insurance policy. They may also have out of pocket expenses such as taxi fees, loss of use of the vehicle and loss of income. This could be the case even if their is no personal injury. The legal expenses cover would emply a firm to recover these losses for a policyholder. As the majority of claims under the legal expenses cover would actual fall under this catagory, saving the policyholder time and worry in havinf to claim this money back from third party insurers. Maybe rather than continually criticising the insurance industry maybe you should start pointing out the benefits and excellant service that the majority of people receive.

[Peter Hunter]

Another scam is legal protection insurance, which adds about £15 to every motor, home contents, buildings insurance policy etc. I have enquired as to whether a single legal expenses policy is available to cover all contingencies but none of the better known insurance companies seem to offer this (presumably because the current system is a nice little earner for them). While I think legal expenses protection might be a sensible option, I refuse to pay this kind of surcharge on every policy. As a result, I have no cover and the insurance companies lose any profit from me for the legal expenses risk. It's a lose lose situation.

[Reg Finch]

Beware, I received a phone call from my bank asking if I would like to take out payment protection insurance on my overdaft - which I have never used.

[Nick Hollands]

The suggestion that Uninsured Loss Recovery Insurance is worthless is totally and utterly ridiculous. For a start the cover is there to provide protection against any uninsured loss and not just personal injury as the correspondent suggests. The policy will cover the client to persue all sorts of potential losses that are not covered by a standard motor policy - loss of earnings would be one good example as would cover to help the client recover his policy excess.

The insurance industry is continually being hammered from all sides, only this morning a broadcaster on the BBC was bemoaning the cost of insurance (hers was a lot cheaper than mine by the way) and blatantly promoting the services (on the BBC!!) of the organisation who happened to provide the best quotation of the day. She ended up paying £250 for what sounded like comprehensive car insurance. £250! for a policy that could potentially cost her insurer hundreds of thousands! What a rip off!

How could anyone involved in the legal profession possibly criticise the insurance industry in this way? Please, please point me in the direction of a poor lawyer!

[dominic moss]

I wonder what Nick Hollands intersts are ? BTE LEI is a con if not why is most of the premium paid as a broker fee and why do the insurers insist to the point of harrasment that you claim under the policy. Insurers wanting you to claim from them - surely something fishy. I am a PI lawyer and I recover all my clients losses on a no win no fee basis as does every other PI lawyer I can think of.

[Sarah carling]

It is not just the unneccasary premiums that can be a rip off, as a 22 year old driver, I have 3 years no claims, yet when my car was damaged by an unknown person last year, it was going to cost me more to claim on my comprehensive insurance, than it was to pay for the damage myself. the estimate for repairs was £7-800. However as a "young driver" I have to pay a minimum excess of £450 with most insurers, and my loss of no claims discount would cost me up to £600.

It does make me wonder why I've been paying for fully comprehensve insurance all these years...And don't get me started on GAP insurance.

[Mario Aristides]

Once again, the perception that ALL insurance is a waste of money and that those who manufacture and sell it are out to rip off the public is propagated by the media and those 'in the know'. The truth is that millions of people pay reasonable premiums for high levels of cover and have benefited directly as a result of their purchase - who paid for the losses following the recent flooding in the NW, who's going to pay for the Buncefield catastrophe, who's carried the burden of Employers Liability/personal injury losses and the spiralling legal fees attaching? Those with a vested interest will laways shout loudest - ARC are a legal expenses specialist and have only highlighted one element of the cover that's provided - other contributors have already highlighted this. Finally, it's worth remembering that the insurance industry made net underwriting losses equivalent to 4% of ALL premiums from 1994-2003 (Economist Intelligence Unit - Mercer Oliver & Wyman), employs over 350,000 people, is the largest market in Europe and is a major contributor to the UK Economy. It's not a perfect industry, but at least it recognises its failings and has a history of evidence to prove that it takes steps to rectify them.

[Nigel Martin]

I agree uninsured loss recovery insurance is a worthwhile product.

However the way it is sold is a rip-off for the reasons below:

1) Brokers and insurers do not ask enough questions to establish whether the client already has ULR via other insurance policies and therefore does not need to buy extra cover via themselves.

2) The mark-up is totally daft. The product costs the supplier next to nothing, but is sold at up to £20 or so.

3) In my view ULR is being used mainly as a vehicle to coral claiments so that the insurer or brokers pet solicitor or hire car company can deal with the claim with the kick backs that gives the original supplier.

As an additional point (which I appreciate you may delete, although it is accurate and can be shown to be so), Mr Hollands view would have carried more weight if he had declared that as a director of Coversure Insurance one of his co-directors Mark Coverdale was a director of 2 ULR companies being Right2Claim and Complete Claims. Information found by a quick FSA register search.

[C Cook]

If the insurance industry is so proud of the job it is doing with BTE then lets have complete transparency.

[kim gayler]

Having been involved in a serious accident(we were hit by czech juggernaut on the M1 during friday rushhour)we had tremendous help from the legal services company that i paid £15 a year for.Three years of consultant visits,solicitor's attention and representation culminating in an out of court settlement.I couldn't have managed that on my own and wouldn't feel comfortable with use one of the "accidents-r-us"outfits.It is money well spent in my opinion

[mR C HOGAN]

After spending over 35 minutes fending off insurance cover for a loan with Northern Rock when the paperwork arrived it stated that i had agreed to take out their Gold cover? adding over £2000 to the loan.Had been desperate for the already agreed loan then i may have felt obliged to accept this scandalous offer.

[W Stevens]

Personally I avoid all forms of "extra insurance" - credit / phone / domestic breakdown but there are many, including a former work colleague to whom it is essential.

They can lose or break most things and "it was just bad luck" to lose or break something of value on holiday. He carried 2 sets of car & house keys at all times as he might mislay 1 - there was at least another set in the office desk and he averaged losing / having stolen 1 phone every 6 mths that would end up with £££s of calls to the far east before being reported. 2/3 house claims in a year, 1/2 car claims not to mention lost keys, windscreen damage, broken dishwasher / washing machines / central heating / computer............

Insurance for him was essential and I am not paying premiums to support their carelessness or "bad luck" as he would say. With careless attitudes like that the insurance companies have to charge high premiums to deter some customers as well as to earn an income from others.

[A.V.ayya]

I have been recently a victim to two policies sold to me as growth policies. one by Standard life and another by Scottish widow.We are not financial experts to understand that nominal insurance cover will substantially affect the mature value.I got final payment of 13000 UK pounds for 10 yearly contribution of 100 pounds each month .My contribution is 12000 pounds .My final payment is 13000 pounds.This is the worst return for any growth investment.
Insurance companies should not indulge in investment funds if they can not give decent growth in value to PEP or other funds.

[David Brocklehurst]

insurance is legalised theft insisted on by the people who gain most by it,ie. government, banks, building societies, etc. I have yet to come accross any insurance that is value for money.

[John Portwood]

As an Insurance Broker (FSA regulated), it pains to see so many ill-thought comments.

The paradox of insurance is that it is something that you buy and hope you never use. This leads to people buying on price as all they see is the immediate hit on their pocket. However what insurance does is replace the uncertainty of a large loss with the certainty of a small loss.

With regards to 'value for money' where else can you buy a product for £50.00 that could save you £100,000 in medical bills, a product costing £200 that enables you to rebuild a home in the event of a fire, a policy costing £10 a week that could pay £100,000 to your spouse if you die or a policy costing £500 that would save you having to pay £2,000,000 damages to someone you injure while driving a car.

So don't knock insurance. Without it this country would be much poorer, not only in the balance of payments but also in the development of our industrial heritage.

Just remember that an intermediary will tell you whether they are advising you and making a recommendation and on what basis whereas a bank/ direct company is selling their own product and it is up to you to check that the product meets your needs. Are you an insurance expert?

[clare flint]

Hi
I am an independent travel agent and I am very cross about your article.
The high street agents may charge more but they have high business rates for their fancy offices.

As an independent travel agent our annual Family Worldwide policy (including ski) starts at £130.00
For an individual it is just £82.50

For European annual cover our annual family policy is £95.00 and for an individual it is £62.50
Please remember to mention this in your next article.
Many thanks
Kind Regards

Clare Flint

[Jean Tucker]

I became redundant recently and sought to claim on my sickness accident and unemployment insurance. What I had never been told by the Ledds Building Society was that I would have to register as unemployed ( a grossly traumatic experience) and sign on every 2 weeks and that the first month of my unemployment was not covered. It meant my mortgage going into arrears for 2 months before they would pay up. In addition I had to keep a log of all my attempts to find work, interviews etc and to agree to a meeting with a company instructed by Norwich Union to go through very personal details and discuss retraining, finding a job etc.I am a professional person and the whole process was degrading to say the least.I did secure further employment. In total I received £300 from my policy cover which costs me £40 per month!
It is a rip off. It is not fit for purpose ie to pay the mortgage during unemployment. It does not stop you getting into serious mortgage arrears. I would have been financially better off saving up my £40 per month.

[Linda Truman]

My comment is regarding a Payment Protection Scheme from Studio Cards.
I am the world's worst when it comes to properly checking statements of any kind.
I tend to look at the minimum payment required and the date it is expected. I then decide how much I actually want to pay, and go about paying it.
I had reason to look closely at my statements from Studio however, and discovered that I have been paying for this protection even though I never would and never did opt into the scheme. I am disabled and not worked for many years,so why on earth would I cover myself for loss of earnings?
I am now in contention with STUDIO who to date will not oblige me with evidence of exactly HOW I opted into this scheme.
Beware when joining anything new!!!!

[Sheila Bannister]

I was made redundant on 31/05/06 and put in a claim to my payment protection insurer Norwich Union. I have been informed by them that because I was paid three months in lieu of notice the 56 waiting days do not start until 31/08/06 which means that I will not get my first monthly payment until December-6 months after I was made redundant. I have paid this insurance for many, many years and it is just a scam-most people will have found a job before they receive a penny-this was never mentioned when Abbey National advised me to take out this policy. I am seeking legal advise!

[Suzanne Jones]

I quite agree, and would add that because of so called PPI, I and my husband gave Abbey the keys back and had to walk away from a house we had owned for 13 years. We had paid monthly to our mortgage company into a policy to which we where both covered for all that time, and until I was made redundant, were under the impression we both were covered, as this was our request at the time of taking out the policy. I was named on all the documents relating to the mortgage and insurance. The matter that I wasn't insured only can to light when I tried to claim against the policy. And unfortunately four months later my husband was also made redundant. Our income went from £600.00 a week to £75 a week overnite, and we had to wait over 3 months for any kind of payment. And then only a pittance was paid. We struggled until we jointly descided to walk away, as although both of us were back working, the debt had gone beyond our control. with added interest and trouble with other insurances with other creditors, we just felt we where drowning in debt through no fault of our own

[natalie riley]

i am an ex employee of the royal bank of scotland. we were targeted on the sale of LPP and given generous bonuses to sell. we were taped on every call and we had to give each customer the hard sell no matter what their circumsdances. i was once forced to sell lpp to a disabled customer who would not have been able to claim at all. i left after i was threatened with dismissal for refusing to sell lpp to people who couldnt claim. the company i worked for within the group was Lombard direct. we were told to tell customers they couldnt have a loan without insurance, never told to say optional and pressured into selling the most expensive cover availiable. the lpp insurance is a rip off and in my experience there are not many successful claims.

[DEvans]

Our complaint regarding ppi is still ongoing with the Ombudsman since Nov 2006, we were forced into taking the ppi with the secured loan, which only covers for 5 yrs. When we were given the loan quote we asked for one with and without ppi, then the lady asked 'well why don't you want to bother with the insurance, as you must have this to protect your home' we said there are other insurance options to cover this that are far cheaper, but they would not have it. Anyway we assumed we had to have theirs, as they did not give the quote without as much as we asked. 'What a fuss' !! We have cancelled since in which the payments only dropped about £14 a month, and the ppi is still added in the new payments.
We should of cancelled by the 30 days, but we was only made aware by advice afterwards that this sounds to be mis sold and would be wise to complain while cancelling and to reclaim the amount and interest back. This was not resolved with the company, so hopefully this will be resolved asap by the Ombudsman. The amount of ppi added is at approx £8-£10k. We have now learnt to be more careful in the future, and know we have not go to stay with the same company who had provided us with the loan.

[anthony pearce]

i have a secired loan woth black horse . last year i had a armed robbery at work where a gun was put to my leg . i was off of work due to the stress of this for 2 1/2 months with councelling & was told by my ppi insurance provider that they would only cover 1 month off of work as this was not a reconised sickness . i stress that i work alone doing nightwork .

[B Kemp]

My mobile phone insurance was certainly a waste of money. I tried to claim on my policy which was taken out through T-mobile. They use a third party insurer who handle claims and wouldn't pay out even though my phone was stolen without me being negligent. These insurers use any excuse they can to riggle out of paying up. My advice, read reviews of customers who have already claimed before buying a policy. I just found out that my experience is not unique either. Found consumer reviews that sound very familiar at these sites at http://www.reviewcentre.com/products2772.html and http://www.uk-insurance-index.co.uk/mobile-phone-insurance-1.html - I won't believe the hype in future.