Chapter 4: Renewals and Cancellation

Question 1

Why would an insurer be keen to encourage renewals?

Answer 1

Renewals are cheaper than new business

Statistical information and forecasting will be more accurate

Question 2

How will an insurer seek to ensure their policies are renewed?

Answer 2

By sending out renewal notices before expiry, or in some cases (eg motor) auto-renewal. Auto-renewal must be clearly advertised to the customer

Question 3

Is there an obligation to renew?

Answer 3

Usually no although sometimes there may be a long term agreement

Question 4

When can there not be a renewal?

Answer 4

For one-period insurance eg contractors/construction work or a one off event

Question 5

Why is the FCA concerned about auto-renewals?

Answer 5

New business may be priced differently to renewals. New business may contain discounts or incentives to entice new customers which are then removed at renewal, leaving an existing customer paying more than a new customer

Question 6

What does the FCA require to be included in renewal notices for general consumer insurance? Who is responsible for this?

Answer 6

1. Last year’s premium
2. Encouragement to shop around
3. An additional encouragement to shop around for customers on their fourth renewal

Insurers and intermediaries

Question 7

Other than what the FCA mandates, what is generally included in a renewal notice?

Answer 7

Notice that the period of insurance is coming to an end
Renewal premium
Any proposed changes

Question 8

Under CIDRA 2012, what must insurers do about representation at renewal?

Answer 8

Remind consumers of the questions and answers on the proposal form of the original policy to ensure they are still accurate

Question 9

What does the Consumer Rights Act 2015 say renewal notices should be?

Answer 9

Transparent and prominent

Question 10

What is the insurer’s right of cancellation during a policy?

Answer 10

Depends upon the cancellation condition in the policy. Usually they must provide at least 7 days written notice but commonly longer, up to 30 days. If invoked (rarely is) they must return any premium pro-rata.

Sometimes the cancellation condition may limit the circumstances under which the insurer can cancel the policy

Question 11

What happens to the duty of disclosure at renewal?

Answer 11

It is revived

Question 12

What are the insured’s rights of cancellation during a policy?

Answer 12

Following inception or renewal they have a 14 day cooling off period. Mid-term it would depend on the cancellation condition, they may be able to cancel but would pay a penalty (short-term premium) for doing so, so would not receive a pro-rata refund

Question 13

Why would an insurer charge a fee in the event the insured cancelled the contract?

Answer 13

To cover administration costs of setting up and cancelling the policy

Question 14

What does the Consumer Rights Act 2015 say about cancellation fees?

Answer 14

They cannot be “disproportionately high”

Question 15

In the case of ancillary insurance policies, what happens when the primary policy is cancelled?

Answer 15

The ancillary policy must also be cancelled

Question 16

When may an insured not be entitled to any refund when cancelling a policy mid-term?

Answer 16

When there has been a claim during that policy period

Question 17

When must customers be provided with information about renewal? Where does this rule come from?

Answer 17

In good time. Comes from Chapter 6 of ICOBS

Question 18

What must an insurer ensure about a policy that auto-renews?

Answer 18

The fact that it auto renews must be clearly communicated to the customer

Question 19

For private insurances where no claims have been made, how will insurers typically treat renewal?

Answer 19

A computer generated renewal notice will be issued as no underwriting intervention is needed (unless the insured notifies of a change in circumstances)

Question 20

You pay for your private car insurance via direct debit on a monthly basis. You receive a renewal notice from your insurer and are happy with the renewal premium and wish to continue with the policy. What action do you need to take?

Answer 20

None - payment of the first instalment via direct debit will be taken as acceptance

Question 21

Typically, how much notice should an insurer give if they want to cancel a policy mid-term?

Answer 21

7 days

But this is dependent on the cancellation condition so may vary

Question 22

What does the FCA say about information given to a customer at renewal? Where does this rule come from?

Answer 22

The information provided must be “appropriate”

Chapter 6 of ICOBS

Question 23

Does renewal constitute entering into a new contract, or a continuation of the current one?

Answer 23

New contract