If we learn one thing from the AIB overcharging drama, it will be that our financial dealings must be double-checked if we are to be certain that they are correct.
For homeowners, the biggest lesson from the messing around at AIB comes from the automatic assignment of payment protection policies on some mortgages without notifying customers.
While the monetary impact of this will have been small, the principle is worrying. It suggests that mistakes can be made with consumers' money at the time (mid-mortgage deal) where they are at their most busy. Errors that occur at such times will be harder for the consumer to track and may go unnoticed forever.
Mortgages bring a raft of other financial obligations that complicate the lives of homeowners. There is the house insurance, the mortgage protection policy and the insurance policy that will meet repayments if you get sick or lose your job. With all these to think of at once, many homebuyers choose to avoid the hassle of shopping around. Instead, they sign up to the policies put before them by their mortgage broker or lender without questioning the value that they might offer.
In a way, this approach is pragmatic, since it allows those in the middle of that moving house to concentrate on the more pressing aspects of the job. From another perspective however, the benefits this attitude could end up being far from worth it.
While the policies provided by your broker or lender might be competitive, this can never be guaranteed. Unless you do some legwork yourself, you can never be satisfied that you are not paying too much for your mortgage protection / payment protection /house insurance.
If you remain unconvinced, perhaps this illustration might persuade you. The Irish Times this week did a little bit of research into the home insurance market to get an idea of how much prices can vary for the average basic policy. The example we used was a house insurance policy for a three-bed semi-d in D24. The house was equipped with smoke detectors, alarm, secure window locks and was in a community-watch area.
The notional applicant for the policy was a female teacher aged 30 who would own and occupy the house. We were seeking buildings cover of €160,000 and contents cover of €32,000, and were prepared to accept a €500 excess.
The differences in the three indicative (not final) quotes* we were offered on three different websites was startling. We started with online broker, 123.ie, which offered an Allianz policy at an annual cost of €318.98 after a 20 per cent discount. Next, was One Direct. Here, after we confirmed that our teacher was not a first-time buyer and that our home would not be occupied during the day, we were quoted an indicative €449.90. Next was Axa, where the website threw up an indicative quote of €475.81.
In 10 minutes we had found three policies vastly different in price. The difference between the cheapest and most expensive was almost 50 per cent. While the policies were not judged on their terms or benefits, the gap would seem a touch larger than perhaps it should be. And if that does not convince all you laissez-faire mortgage-hunters to shop around for all your financial products, then what will?
* Quotes were based on basic questions and were not final. Policies are compared strictly on the basis of price quoted, not terms
