18 November 2013

Insurer assumptions leave holes that you can exploit

Here are some ideas to reduce your premiums by learning the prejudices used in the insurance industry*

If you want to cut the cost of your insurance, it can help to know the assumptions insurers used when setting premiums.

Insurance companies now analyse huge volumes of data to spot which customers are most likely to claim on a policy.  But this number-crunching can throw up some unexpected results. Here are some of the more unusual quirks, and explain how you can use them to your advantage.

There's no such things as a 'no-fault' claim

If you make a claim on your car insurance, expect to see next year's premium rise - even if you weren't to blame for the incident.  When settling a claim insurers will deem one side 'at fault' and therefore liable for costs. But the reality is both drivers will be rated higher risk in future.  (rather tough for someone like me who had her car driven into when stationary in a car park!)

Research by the AA found more than a third of insurers will raise premiums after one 'non-fault' claim, with 5% raising  premiums by 30%.  If you have two non-fault accidents the majority of insurers will push premiums up by between 10% and 50% (sounds like any excuse to me!), with one insurer adding 300% 'loadings'.

It's startling to find that some insurers are prepared to apply such high loadings.  The AA applies no premium increase after one non-fault accident, and 8% after two.  There is statistical evidence that shows those who have suffered a no-fault accident are more likely to go on to make a fault claim.   This may be because poor driving habits can contribute to a non-fault accident.

If you've had a no-fault claim, make sure you shop around as not all insurers raise prices (and some will for certain risks, but not others).  If you're involved in a second, or third incident, it may be cheaper to pay for minor repairs yourself, rather than pay the higher cost of insurance.

Add an extra driver and cut insurance bills

Insurers assume those who are married or in a long-term relationship are safer drivers - perhaps because they are more likely to be curled up on the sofa watching tv at night, rather than haring around in a car.

As a result, a driver with a 'joint' car insurance policy will pay around £100 less than a single person of the same age.

But you don't have to tie the knot to make the most of this quirk.  If  you are in a relationship, but drive your own car, put  your partner down as a 'named driver'.  Even 'naming' a close friend, or parent can reduce costs, provided they don't have previous driving convictions.

Apparently a single person in their 30s pays an average of £430 for car insurance; while a driver who has a named partner on the policy pays an average of £316.  For those in their 40s, the price falls from £320 to £228, while those in their 50s and early 60s will see prices fall from £250 to £177.

You don't need to be living at the same address to benefit, although if you are this is likely to be a more significant saving.

Beware:  when I wanted to add my (teenage) daughter to my car insurance, it was then deemed that I would be using my husband's car and that my daughter would then be the main user for my car.  So the premiums shot up, despite me telling the insurance company that my husband worked away so in fact there was no way I could share a car with him for most of the time!

'Fully comprehensive' cheaper than third party cover

This is another example of how you can pay less for more cover, although this wrinkle only applies to younger drivers.

Fully comp insurance covers both your own car, and the cost of damage to another.  But third party cover only applies to damage to other vehicles (and people).  Surprisingly, it is the more expensive option for drivers under 40.

Many of those with lower value vehicles opt for third party cover as it used to be cheaper.  As a result the number of claims on these types of policies rose.  Insurers now take the view that drivers opting for these policies are a greater risk.  In other words, premiums are higher because insurers assume drivers opting for third party cover are more inexperienced and reckless.

Far more insurers offer comprehensive cover, so this is a more competitive market.  Only about 10% of the policies sold are for third party cover, and most of these are to younger drivers, so it is not hard to see why this has become a more expensive option.

Figures show that a 20-year-old man can save an average of £326 a year by opting for 'fully comp' cover, but by the age of 25 the saving is just £49 a year.  Motorists aged 40 or over pay on average the same, regardless of the policy type.Make use of this quirk while you can.  If all younger drivers opted for fully comp cover, this differential would no longer exist - and the cost of fully comp cover for this age group will increase.

Worldwide travel cover that isn't global

Thanks to a 40-year-old trade embargo, American insurers assume you won't be going to Cuba for your holidays, as they can't legally cover you for travel to the island.

This also affects UK holidaymakers who have 'worldwide' travel insurance with certain companies which are underwritten by AIG, a US company which enforces the ban.

The exclusion is clearly stated in the policy documents, but could be overlooked by those who have annual policies, or insurance that's part of a packaged bank a/c or credit card deal.  

Hidden cost of spreading insurance payments

It's known that insurers charge interest if you opt to pay premiums monthly, rather than in one payment.  But did you know insurers will charge higher interest payments to those deemed more risky drivers? Research found that the APR charged to customers varied if they changed their job, their address, or the type of car insured.  These interest rates vary from 20% to more than 40%.  

Become a safer driver can push up your premiums

Penalty points on your licence, for speeding or other driving offences, push up your car insurance premiums significantly.  But those who opt instead to attend a 'speed awareness course', designed to make you a more responsible drive, can also face an increase.

Apparently there is statistical evidence that those attending these courses were more likely to claim on their insurance in future.  There's no central database of which drivers have attended such courses, but if the insurer asks you have to give an honest answer, otherwise you could invalidate your insurance. Not all insurers ask, so if you've attended a course do shop around for cover, as it's still better than accepting the points.

* From an article in the Daily Telegraph

No comments:

Post a Comment