James Daley

By James Daley

A few months ago, I let Amazon persuade me to take up a free trial of its Amazon Prime service. It was great having next day delivery on everything I ordered, but in most cases it felt like a nice to have, not an essential. When the trial came to an end, I decided to cancel - but missed the date and ended up being charged £79 for a full year's membership.

I feared that if I now cancelled, I'd get nothing back. But to my surprise, Amazon offered a pro-rata refund, charging me only for the few days that I'd been a paid up member. I was impressed - and it left me open to the idea of resubscribing in future.

What insurers can learn from Amazon

This is not a tactic that's common in the insurance market. The vast majority of travel insurers will give you nothing back at all if you cancel your policy after the 14 day cooling off period. In fact, 25 of the 29 travel insurance brands analysed by Fairer Finance offer no refund. And while the average basic travel policy may only cost £50 - it's possible to spend hundreds of pounds on your travel insurance if you have pre-existing medical conditions, or if you're an older customer.

It's quite possible that after buying an annual travel policy, you get seriously ill and know that your holiday plans will have to be cancelled for the year ahead. Admiral, Direct Line, Direct Travel and Santander are the only four brands in our survey that would refund your premiums in that situation - and even these four charge an administration fee for cancelling.

Is a £75 cancellation fee just covering costs?

The situation isn't quite as bad in car and home insurance. In these markets, pro-rata refunds are the norm. However, administration fees are on the rise. Budget Insurance, for example, will charge you £75 for cancelling after the 14 day cooling off period. Given that some people pay a couple of hundred pounds for their car insurance policy, this level of charge is punitive - it's certainly hard to make the case that this is just a matter of covering costs.

Budget is not alone. Axa charges £52.50, and a number of brands for which Budget's sister company BISL does the administration (such as RAC, Post Office and Halifax), charge £55.

As long as you haven't made a claim, it's hard to justify charges as high as these - and it's arguably anti-competitive. If you change your car during the year, and your current insurer ratchets up your premium, you should be free to shop around. But the cost of cancelling your existing policy means that even if someone is offering cover for £50 less, it may be more expensive to switch than stay put.

If insurers are to charge administration fees, they should be kept proportionate to the cost. And more importantly, they should be disclosed in large print during the application process - so there are no surprises for customers. In the case of travel policies, that goes for the cancellation terms too. In my view, insurers should not be able to simply keep your whole premium if you decide to cancel - but as long as that continues to be common practice, it's something that insurers should be shouting from the rooftops at the time you buy the policy.

It's something that we look at, as part of Fairer Finance's transparency analysis. As things stand, only Age UK, LV and Lloyds make it crystal clear. The rest leave you to scrabble around in the small print.