Why you should reconsider buying your household insurance from your bank

Home insurance

Do you trust your bank?  If the answer to that question is ‘no’, then you’re in good company. According to research by PwC towards the end of 2014, only 32% of people in the UK trust their bank.

Almost a third of those surveyed cited press coverage as one of the main influencing factors involved in their distrust of their bank and retail banks in general. If you take a glance over some of the headlines in the recent past, this is perhaps unsurprising.

Key UK banking scandals

Back in 2007, in the early days of the credit crunch, Northern Rock hit the headlines as anxious customers queued for hours to withdraw their money in the fear that the bank would collapse. This was triggered by the bank having borrowed huge amounts of money to fund its mortgages, and being subsequently unable to resell them in the capital market. When it applied for a loan from the Bank of England, consumer confidence plummeted. The eventual result was the nationalisation of the bank, and the end of the Northern Rock brand. This situation was however not peculiar to Northern Rock, and there was much more bad news to come from the banking sector.

The following year, as the scale of the global financial crisis which the banks played a key role in creating became apparent, the UK Government bailed out several large banks, including the Royal Bank of Scotland, HBOS and Lloyds TSB. During this time, shares in the banks plummeted, and it is widely held that it was only government intervention that prevented the total collapse of the banking system.

Then there was the Libor scandal, in which derivatives traders from Barclays Bank were revealed to have attempted to ‘rig’ the London inter-bank lending rate – one of the most important interest rates on the UK market. Employees from other banks were also found to be involved, and Barclays was fined £290m in 2013. Public confidence in banks hit a new low.

Another of Britain’s biggest banks, HSBC, was involved in a publically damaging tax avoidance scandal.The bank’s Geneva offices were dramatically raided by police, after it was accused of ‘aggravated money laundering’ and assisting clients with tax evasion and avoidance.

Such is the scale of these and other banking scandals that this month a study by KPMG found that more than 60% of the total profits of the biggest banks in the UK has been wiped out by the aftermath of financial scandals occurring over the past three years. This amounted to more than £39bn spent on ‘customer remediation, conduct failings and fines’, over the period.

Distrust in banking services and transparency issues

But for many the reason for mistrusting the banks is a little closer to home. PwC’s research also found that 41% of people said that their reason for distrusting a bank was due to ‘personal experience dealing with provider’, while 27% cited the most influential factor as ‘transparency of price and terms/conditions’.

So it’s surprising then that so many people still purchase their household insurance through their bank. Often it may seem like a convenient option, particularly when it’s offered by a ‘helpful’ member of staff who has quotas for up-selling insurance and other financial products to meet. But in light of these banking scandals is it really a good idea, and do banks actually offer a good deal on household insurance?

Do banks offer a good deal on home insurance?

Even if one were to ignore the past banking scandals and the general public consensus that the banks aren’t to be trusted, the fact is that it can actually work out significantly more expensive to purchase your household insurance through your bank.

Your bank will generally be signed up to sell home insurance through just one insurance provider, so the element of choice is taken away. They may say that they are offering you a good deal, but chances are this is in fact the only deal that they have to offer, as they are tied into offering insurance products from this one provider.

Compare this to Park Insurance and other insurance brokers who will be able to go to a panel of 20 or more insurers, who will in turn offer a choice of a wide range of policies, and it’s hard to see how buying your home insurance through a bank could really represent the best value for money. By having the freedom to approach multiple insurance providers, brokers like Park are actively encouraging competition and driving prices down for homeowners. At the same time, more importantly, they are generally able to identify the best deal for your situation and save you money on your home insurance.

As is often the case with banks, their way of doing things does little to promote competition or enhance consumer choice.

Who do you trust with your home insurance?

There may also be hidden charges locked away within the small print within the policy sold to you by the bank. Modern banks operate as sales-driven businesses, and in their haste to meet their targets, bank staff may avoid telling you about key points or even mis-sell you policy add-ons that you do not need. One only has to look to the debacle of the payment protection insurance (PPI) scandal for evidence of this.

Given the facts, who do you trust to provide you with household insurance which is suited to your needs and offers value for money? Give us a call at Park Insurance and we’ll be happy to tell you about the range of policy options available to you, openly and honestly.

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