The price of car insurance
We have all wondered why the price of our car insurance is so high. Are we being ripped off?
There are several factors which determine the price of insurance because
every policy is tailored for an individual
Insurance companies are profit making like any other and while this article is in no way a justification of their prices; I have written it in part as an explanation as to why they are that expensive.
In this article I propose to list several reasons for the cost of motor insurance and discuss them individually. I will finish with advice on how to reduce your premiums. Any comments in italics represent only the personal opinion of the author.
Car insurance is expensive because of: -
legislation - Car insurance is compulsory. A cynical mind would say that because insurance is compulsory the companies do not have the market pressure on them to compete for the lowest possible prices. There is competition within certain parameters but car insurance in this country remains at higher levels than it does in countries where car insurance is optional.
Personally I am delighted that car insurance is compulsory. Can you imagine how many uninsured drivers there would be if this was not the case.
losses on other insurance markets - Insurance companies provide many types of insurance cover. As well as personal policies such as life cover and house and contents they also provide cover for a mind boggling array of commercial policies. Insurance companies are usually part of a larger conglomerate and provide cover in all types of insurance markets all over the world. If the insurance company makes a loss on one market it has to make up the loss the following year by increasing premiums across its other markets.
For me this is one of the problems of the legislation above.
The insurance companies know that we do not have an alternative but to pay for insurance. Such a captive market must be a temptation for them to increase prices here further than in unregulated markets where the increase would drive people away from buying insurance at all. Though I am aware of this I still agree with compulsory motor insurance.
Shareholders. - All companies exist for the primary purpose of providing a profit for their owners, be they individually owned or split into many shareholders. Companies do operate in many different areas of busines and some are more or less ethical than their competitors but they are all designed to make a profit.
This is the way the world works. Get used to it.
Individual circumstances - Insurance is always going to be more expensive for new policy holders. By definition they are untried as payers and inexperienced as drivers. It is statistically proven that in their first few years of driving new drivers have a higher accident rate than any other group. This is simple fact.
As people gain experience and benefit from their experience they become less likely to be involved in an accident. You will become not only a better driver yourself but also better at spotting in advance and avoiding the mistakes of other, possibly newer, drivers.
Ways to minimise your premium: -
How to reduce the price - There are ways available to reduce the price of motor insurance. Some of these are going to seem more than obvious whereas others may need a little explanation.
1) The postcode lottery: - Two new drivers from different areas of town can go out and buy identical vehicles. Identical in every way that is apart from the home address of their owners. It is a fact that these vehicles will have different insurance premiums because of the postcodes of their owners. The insurance industry collect data on the number of claims in every postcode and charge accordingly. In other words; if you live in an area where crime against the vehicle is more likely then they will charge you more every year.
For most of us there is nothing that we can do about this. If you have a choice of where to keep your vehicle then use the 'better' address on the insurance forms.
2) Annual mileage and where the vehicle is kept: - The less miles that you do per year the less likely that you are to have an accident. This is recognised by the industry but sometimes only has a small effect on the premium. If your car is stationary but kept on the street then it is still more prone to theft and vandalism. The best combination for keeping the premium down is a vehicle that does low mileage to be kept off the street, preferably garaged.
3) Type of cover: - Third party, third party plus fire and theft and fully comprehensive are the three choices on offer. There are extras that can be added with legal protection and windscreen cover probably being the most popular.
Third party is the cheapest but as it says. Only the other parties involved are covered. You get nothing. For older vehicles with lower values third party fire and theft is quite a common choice whereas for newer or higher value vehicles fully comprehensive insurance is seen as the only real option.
I have personally had to use my drivers legal protection cover twice.
Many insurance policies do not cover loss of earnings, medical costs or many other things. This insurance 'extra' only costs a few pounds per year and is well worth the money in my opinion. I never insure without it.
4) To fit an alarm or not? - Your vehicle may have a suitable alarm system pre-installed. If not be very careful which type you have fitted. Check first what the insurance company will accept. Some only accept manufacturer fitted while others will accept good quality alarms professionally fitted. They are unlikely to accept a self-fitted system as thieves are usually quite professional and will bypass them easily.
5) Policy excess: - The excess that you are prepared to accept is the amount of money that you will have to pay out yourself if there is ever a claim. For example: if you accept an excess figure of three hundred pounds and two hundred pounds worth of damage is done by someone driving past your car too closely then do not contact the insurance company. Because the bill is less than the three hundred pounds excess figure it is all yours.
Generally speaking the higher an excess value you are prepared to accept the lower your insurance will be.
Be very careful what you accept here. A few pounds extra on an insurance premium can save a lot of financial pain if someone hits your car and drives off.
6) Pass Plus: - If you have passed your driving test within the last twelve months then you are eligible to take a Pass Plus course. The Pass Plus scheme is an excellent way to gain more knowledge and practical experience after passing the test and includes modules on night driving and motorways. Some insurance companies see this as being valuable enough to offer a thirty percent discount on premiums for the successful candidate.
Pass Plus courses are not that popular and I do not quite understand why.
I understand that once the normal practical test has been passed the pupils want to be done with tuition but a thirty percent discount is big money with todays insurance premiums. Most new drivers consider themselves extremely lucky if they can get a small car insured for less than a thousand pounds.
