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Consumers who insure small devices like mobile phones on a monthly basis could be left paying for policies for years due to a hole in regulations.
Strict rules mean firms cannot automatically renew annual insurance policies without warning a customer in good time and clearly pointing out any price increases. However, these rules only apply on policies which last for more than 10 months.
Policies which roll over on a monthly basis with no fixed end point exploit a hole in the rules that means insurers aren’t obliged to make customers aware of their existence.
One Telegraph Money reader recently realised he had been paying £3 every month to insure a mobile phone which he had not used since 2016. He had taken out a month-to-month policy with a company called Switched On in 2014. The firm had not contacted him since September 2016 but had continued to charge him every month.
The small size of the payment meant he had not noticed it leaving his account each month until he was doing an overhaul of his finances. The policy terms state that customers will be contacted every 12 months about the policy.
For this reason Switched On, a trading name of Taurus Insurance Services, agreed to refund the reader £71 – backdated to 12 months after its last contact. The firm refused to comment after being contacted by this newspaper.
James Daley, of consumer group Fairer Finance, said monthly policies were growing in popularity.
“The problem with rolling contracts is there’s no onus on companies to contact customers and take advantage of the fact that consumers might have forgotten the policy exists.”
He added: “The Financial Conduct Authority is doing its market study at the moment and that would be the perfect time to address this. It would be an easy loophole to close.”
The FCA, the City watchdog, said there are rules requiring all insurers to treat customers fairly and consider whether their needs may have changed. It would expect firms to take steps to address concerns if it is likely a policy is no longer needed.
Monthly insurance policies are growing in popularity, with research from analysts Consumer Intelligence showing that around a fifth of young people have flexible car insurance.
The firm’s Ian Hughes said: "When we look at the future of insurance, our research shows that the traditional 12-month policy is set to become increasingly unpopular as we move down through the generations, with millennials and Gen Z least likely to purchase this type of insurance.
“Insurers not only need to change the way they serve their customers by providing the flexible and on-demand products and services they want, but also address how they maintain transparency and support their customers to continuously access the policies that best serve their needs."
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