Questions and Answers
I am thinking of cancelling an Insurance Policy, will I get a refund and what are my rights? If you are a sole trader or small company and you bought the insurance through an FCA (Financial Conduct Authority) regulated broker or insurance company over the internet or telephone, the Distance Selling Regulations apply. So if you take out the policy then you normally have a right to cancel within 14 days of having been sent your documents and you should receive a good proportion of your money back. This 14-day limit is often referred to as the “cooling off” period. Insurance companies and brokers are entitled to charge for administration costs and time on risk and these will normally be disclosed in a Terms of Business Agreement (TBA). It is worth noting that the figures disclosed may not be expressed in purely monetary terms so may, for instance, advice they charge 10% for admin rather saying £50 for instance.
Brokers and Insurers will normally have their Terms of Business available on their websites or at the very least provide you with a copy with any quotation if they haven’t previously provided one. If you don’t understand or don’t like the TOBA then query it before buying the policy. Once you have purchased the policy it will be considered that you accepted the TOBA and unless the TOBA is totally unfair and/ or not made available to you until after you have gone on cover it would be hard for an Ombudsman to side with you in event of a problem relating to the TOBA. There are two main exceptions to the cooling off period.
Firstly, if you have had a claim in the period the insurance company is entitled to the full premium. It is also worth noting that if you cancel a policy and receive a refund and later on notify an insurance of a claim they may not have to deal with it in full, if at all. Secondly, short period cover policies are exempt from the cooling off period. This is to prevent a person or business buying a policy for example for a one off event then cancelling once the event has finished and trying to get some money back.
Short period/ one off policies should have a separate style TOBA specific for that type of business. There is a further exception which is less common these days and that applies to customers who have visited the broker or insurance company and purchased the policy onsite and have had the TOBA and policy terms and conditions agreed whilst on the premises since the distance selling directive doesn’t apply. Though many good brokers will still honour the 14 day cooling off period it is not a requirement they do so. Once the cooling off period is over cancellation can be more complicated. Insurance companies are not obliged to offer a refund of premium.
Though if they are totally unwilling to offer any return premium for any reason at all their policy documents must state that the premium is on a minimum and deposit basis in the policy schedule and in the terms of business/ regulatory disclosure. Though this only tends to happen on high risk liability, large insurance policies or very small ones (purely due to administration and cost effectiveness of small premium insurance). That said most insurance policies over £100-£200 will be refunded on a pro rata or near pro rata basis, with possible deductions for fixed price inclusions such as Legal Expenses because this is often underwritten by a specialist legal expenses company for a fixed price much lower than available as a standalone cover.
Also, many brokers will keep their commission or impose a cancellation charge/ service charge and sometimes both. Also some policies particularly for seasonal business and policies for unusual periods of insurance (rather than being an annual policy a period may be based on a completion date for a building or construction style cover) may have very high cancellation rates. Occasionally, certain insurers won’t give return premiums if a policyholder moves elsewhere part way through the policy because they have got a cheaper quote. So please check a company’s terms of business, in particular your cancellation rights and check you are comfortable with them. If the policy is purchased via a broker, they have to disclose what their commission is if requested, which may be useful to know if they state they will keep their commission.
This information was supplied by Bill Imber BSC (Hons), Cert C.I.I., G M Imber & Sons Ltd.,
Insurance Brokers, phone 01342 327250, who specialises in insurances for the
Retail, Crafts and Market Trading Industries.