James Daley

By James Daley

When your car insurance renewal letter drops through the door - the one thing you really want to know is how next year's premium compares to the last one. But just as banks often don't even include the interest rates on savings account statements, insurers, of course, never tell you how much they're putting your premium up by. Their first hope is that you won't open the renewal letter at all - and that you'll roll over and pay whatever premium they have offered you without giving it a second thought.

But even for those who do open the letter, the insurers' hope is that by shouting about the benefits, and diverting attention away from the price, that customers will eventually decide that the effort of shopping around is too much to bother with.

In a market where premiums for first time customers are often at rock-bottom prices - so as to be competitive on price comparison sites - most insurers try to push through above-inflation price rises in years two and three. Presumably, they try and disguise the extent of the increase on the assumption that being upfront will prompt more customers to switch. My suspicion is that it wouldn't make as much difference as they think.

Insurers staying ahead of the curve

That's certainly the assessment of the Association of British Insurers (ABI), who today has called on the Financial Conduct Authority (ABI) to force insurance companies to display last year's premium on renewal letters.

The ABI's move to lobby the regulator in the interests of consumers is refreshing. Tactically, it's clever as well. For too long, financial services companies have built their businesses to exploit their customers' inertia and lack of understanding about the products they're buying. But the FCA has made it clear since it came into existence last year, that these kind of tactics won't stand. So it's smart for the industry's trade body to see the direction that the wind is blowing in, and to try and shape its own destiny, rather than waiting for the regulator to come along and make decisions for it.

What's more, this could in fact be good business in the longer run. Banks and insurers' predeliction for taking advantage of customers' apathy drives down trust in the industry. Soon enough, most customers wake up to the fact they're being charged too much - and move their business elsewhere, feeling resentful of their old insurer as they go. By being transparent and helpful, they're more likely to end up with customers who actively decide to remain loyal - and maybe even accept hefty price rises on the basis that they have been happy with their overall experience with the company.

And in the short-run, it's a certainty that millions of people will still fail to switch, even after the extent of any renewal price hikes - or rate cuts in the case of savings - are laid bare. As long as banks and insurers have been transparent, and given customers every chance to make the right financial choice, then the responsibility will be the customers if they miss out.

In today's opaque world, however, it's hard not to blame the companies every time a customer gets a poor deal, as the companies have often been complicit in their failure.