Do we even make mistakes buying car insurance?

 The ever-increasing number of consumer comparison sites for motor insurance seems clear evidence that price is the primary factor which determines our choice when purchasing motor cover. TV and media advertising likewise focus our attention on potential savings, and thus it would seem the present market favours consumers who stand to benefit from such healthy competition. Indeed, MPs on the Transport Select Committee have recently confirmed that ‘premiums (have) fallen by 34 per cent in the last year’.

Back in the days before comparison sites, insurance brokers advised consumers about suitable motor insurance at an affordable price. Then, the dual aim of a broker was to deliver the right cover at the best price. However, today’s technology, which can even deliver single day policies efficiently, and ‘market-best’ prices to our screens in seconds, is optimised for price comparison, and largely skips the ‘broker advice’ function – an interactive discussion with an industry professional about our motor insurance needs.

Does this matter? Well, the answer is no and yes. No, it does not matter because we can be sure all UK policies meet the insurance requirements of the Road Traffic Act, therefore, no laws will be broken. Yes, it may matter because too many of us never read our policy documents. Consequently, we only ever discover the downside of a particularly poor purchase choice – if there is one – when a mishap occurs, which is when we really expect our policy to deliver just ‘what (we believe) it says on the tin’. In a nutshell, motor insurance has moved into an era when you mostly ‘get what you pay for’, whilst many of us still imagine our policies will cover most things that could happen on the road, beyond running out of petrol.

Developing this point, ‘old school’ motor insurers, justly proud of their longstanding reputation for quality of service, do exist in today’s marketplace, but so to do companies who charge a market-competitive rate to meet their contractual obligations under your policy – and nothing more. The modern reality is that companies who still buy into a ‘traditional values’ model tend to charge high-end premiums. Of course, they have great bargain offers from time to time, and brokers can still spot these deals, but the rest of us miss out.

What we’re missing often becomes apparent when we make a claim. There can be a vast difference in attitude and approach between companies handling the same issues. Some will focus on what they can do for you, whilst others handling the same situation may appear to focus mostly on what is not covered. Claims settlement is the sharp end of the process where some insurers may be under more pressure to drive down costs, perhaps so they can keep those keen prices we all love. Claims settlement is also a company’s best opportunity to build a truly positive customer image

It is generally true that cheaper prices are achieved by limiting the scope of cover offered. This is all too obvious if the great quote you are offered carries a £500 claims excess, but the trimming back of customer benefits is usually less transparent than this. The detail is written into your policy terms and conditions, where most of us will never look to find it. There is no such thing as a ‘standard’ comprehensive motor policy. What is covered is broadly comparable and has developed through many years of custom and practice, but the trend has been to gradually reduce cover to keep down costs and premiums.

In such a climate, where cover is narrowly-defined, it becomes really important to know your needs are really covered. For example, with cover for ‘social, domestic and pleasure’ use, shopping is covered, but not driving to work – which is commuting. If commuting is covered, you can drive to and from work, but any use of your car at work will be deemed business use, which is not covered. Similar restrictions apply to towing, if your policy covers this at all. There may be restrictions on the size and type of what you can tow, and restrictions on the cover (third party only on what you are towing), alongside possible exclusion of cover whilst towing abroad.

Besides cover restrictions, some insurers are adopting other practices to make ends meet. New research from Which? suggests a whole range of additional policy charges are made when customers request changes. These costs can be a nasty shock. Advance warning of policy administration fees, if available at all, is often buried deep within policy documentation. In one example, just 12 out of 37 household-name insurers would issue a duplicate certificate for free, whereas the rest would charge up to £26 for the service. Elsewhere, cancellation fees, to end a policy before its normal expiry, were quoted at £40 on average, with one insurer asking £70, and only four companies making no charge.

Deploring the findings, Richard Lloyd, Which? executive director, said: ‘Fees… should not be used as an excuse to squeeze more money from consumers who have little choice but to pay.’

One extra charge we can all avoid is paying an annual premium by instalments. Paying monthly can attract an APR of up to 30 % where, by comparison, using a 0% purchase credit card to spread the payments would represent a substantial saving.

In summary, it is vitally important to research and understand the cover you are offered. Not only will this knowledge help you evaluate true costs, the understanding gained will help you negotiate genuine savings and avoid unwanted cover. For example, vehicle manufacturers regularly offer ‘extras’ to boost sales and some have ‘free’ courtesy car schemes when your vehicle requires an accident-damage repair. This in turn means you can look at motor insurance quotes without a ‘courtesy car’ benefit, potentially producing a genuine saving for no reduction in cover – just one instance where it pays to know what you’re buying.

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