My insurance broker tried a similar scam.
I sold a bike.. I told my insurance. They said they wanted a load of money to cancel the policy. The 'fee' was twice the amount that I'd have got back as a refund. When I said 'just let the policy run out', they said that it was illegal as I'd be insuring the bike even though I didn't own it.

I took it right to the top of the ombudsman level. A five minute phone chat ended up with me understanding that I could tell the brokers to go screw themselves (which in fact actually mean't me ignoring their letters for the last 8 weeks of the policy). I would have only broke the law if I'd try to claim for an incident involving the new owner. (which, of course was not going to happen).

So, all correspondence was ignored.

It saved me several quid. Lesson learned, don't bend over.

Remember people, just because some person on the end of a phone says something. It doesn't make it law.

:D

EDIT: (based on UK law) - I've no idea about any backward colonial agreements ;)
( mikenco, Sat 2 Oct 2010, 2:29, Reply)