Three Weeks to save a Few Hundred Quid!

Last week a number of newspapers carried the results of a survey which showed that shopping around for your car insurance three weeks before renewal can save nearly £300 compared to leaving it to the very last minute. I have not tried the experiment myself, but am more than happy to believe it. But what does it actually say about the car insurance marketplace? It’s not great in my opinion.

A couple of years ago, one of the online comparison sites wrote a piece suggesting that just over a third of customers didn’t shop around and “auto renewed”. They also suggested that by not shopping around, customers were collectively paying £1.3 billion more than they needed to. That’s rather a lot. It is also a reason why those of you savvy enough to shop around can get a much better deal. Why? Because, insurance companies factor in this amount to their budgeting plans.

Lets be quite cold about this. An insurance company is a business, its first priority is to deliver profit to its shareholders or owners. To do this it must work in an efficient manner, a significant part of that efficiency is predicting cashflow over the coming years. If they know that a third of their customers will renew without much of a haggle, then they can use this money to sweeten deals for new customers and those threatening to move elsewhere. It kind of takes away the image of highly qualified underwriters working out prices using complex formulas that include age, vehicle, usage etc.

Don’t get me wrong, such underwriters still exist, and revel in their complex formulas, it’s just that the marketing folk are considered more important and will nearly always trump realistic underwriting figures in order to get a sale, or keep a customer.

*warning! A “it wasn’t like it back in my day alert”*

When I first started dealing with car insurance, my company gave me a Rate Book. There was no computers, everything was done manually using figures in the book, which was updated three or four times a year. When I gave a quote, that was it. If the customer had got a cheaper one elsewhere, that was my bad luck. I had lost them, and if I was feeling organised, I would make a note in the diary to have a go again next year. Now I really wouldn’t want to go back to those days. However, I do have a little nostalgia for that period when the premium quoted had a bit of a connection with the actual risk being insured.

Today, I have no doubt that the first figure given is the one most likely to reflect the actual cost to the company of the risk, plus a bit for the shareholders annual golf dinner.  The second and subsequent figures reflect how much can be quoted until the customer says OK. I may be a bit cynical here, but in my world a cynic is just an experienced realist. It has been a few years since I did any quotes myself, but not that long ago, and I still remember insurance companies giving me discretion to discount up to say 20%, but to start a 5% and stop when the customer says yes.

Only last year, I was chatting to a person who worked as a customer adviser in one of the last of the high street brokers. They told me that they had authority at that time to knock off £70 immediately they felt they may be losing the customer. if that didn’t work, then the manager could throw in another £70. After that they could still get on the phone and try and chip away further. “What if the premium starts off at £250” I asked. They laughed and said it would end up at £110!  Great for the customer. Absolutely nuts for running a business. While I still think you have to be a bit barmy to use a high street broker who doesn’t give you actual proper and independently qualified advice, I can honestly see the attraction of taking daft premiums if they are being offered.

If we are being honest with ourselves, we are all a bit lazy. It’s part of being human. And it’s what companies rely on to, putting it bluntly, overcharge. When you take out a car insurance now, it is almost certainly one whereby you have agreed to continue with the insurance automatically at renewal. The selling point of this is that you should never find yourself without insurance, which is actually a very good thing. the bit that isn’t shouted from the insurance company rooftop is that the premium you will be paying is going to be part of the £1.3 billion slush fund that will be used to subsidise your friends, neighbours and colleagues who have been a bit more proactive than you have.

 

Should Social Media profiling be used to determine Insurance Premiums?

Facebook Prevents Insurer from using Posts to influence Premiums

Today was supposed to be the launch of a pilot scheme by the insurer, Admiral, whereby they would ask to view the potential insured’s Facebook posts and then make a judgement as to the lifestyle and behaviour of the person and then offer a premium that was influenced by their judgement of that person.

Admiral had stated that it would analyse the accounts of first-time car owners, including what they were posting and things that they had “liked”. From this they would then build up a profile and determine whether they were likely to be safe drivers and offer discounts as a result.

Facebook has, at the last moment, pulled the plug on this. Probably because it realised that it could be embroiled in the considerable number of disputes and complaints that was sure to follow from such a subjective idea.

There are so many reasons why this crazy plan should not have got even this far. However, it does highlight the lengths insurers are prepared to go to in order to gain an edge in a market. Even if that market is as notoriously difficult to turn a profit from as young drivers.

My suspicion, having been around insurance companies for a while, is that some senior executives who wanted to appear hip, have ill advisedly listened to some trendy junior executives who have told them that the future is all about social media. In order to appear to be “on trend”, like your bachelor uncle who wants to take you to a Drake gig, said senior executives suspended their experience and, more importantly, common sense and ran with the idea.

While the pitfalls of this nonsense are pretty much self evident. It does invite closer thought. Long before social media was even a term, I was broking motor insurance. At that time, potential clients would either phone or drop in and complete a form from which a premium was calculated. But even then then problems would arise. It wasn’t common, but then again not that unusual for someone in the office to declare that they had some knowledge of the potential client that had not been declared. I have been told on more than one occasion that someone was not declaring their address properly, or not mentioning their part time evening job, in order to get a cheaper premium. How did they know? They lived next door to the person and knew they had moved months ago or saw them going to work every night!

Realistically speaking what actually is the difference between an insurer finding out “relevant” information from a third party as happened years ago and finding out such information from social media?

The point is that social media provides the type of information that all businesses will give their right arm for and whereas most people will resist attempts to give information if they think it will be used for marketing, most will be happy to volunteer such information, and a lot more, in a social media post.

Probably all young people are warned that potential  employers are likely to look at their social media profiles prior to being interviewed, and the more savvy ones will moderate what they post and who they let see it. The next level will be the use of social media profiling for commercial purposes, there is a good argument for saying that it is already here.

Perhaps Admiral’s biggest mistake was not trying to exploit social media, but just being too up front and honest about it. Even more of a mistake is the kind of information people are just thoughtlessly putting online for the world to see.

 

Further details of this news story can be found by clicking here and more information about car insurance and the use of Black Boxes here 

Gap Insurance Explained

Just what is Gap insurance?

It’s Guaranteed Asset Protection insurance. There you go…clear, simple and easy eh?

No.

It’s a bit more complicated than that. I know, unusual for an insurance product but what can I say…

Although there are some variations, in the main, Gap insurance seeks to fill the shortfall that may occur between the value of your car and the amount you may receive from an insurance company if your car is written off.

“What shortfall” I hear you cry…

It’s a fair question. It is a common belief that when you take out car insurance the question about “How much is the vehicle worth” has a bearing on how much you are likely to be paid if your car is written off. Invariably, this is not the case and it is more likely that the value you give will have more influence on the premium charged than the amount that you will get after a major accident. (Do not, however, fabricate the value of your vehicle in order to get a lower premium, this is a very bad thing to do and may invalidate the insurance and even lead to proceedings for fraud!)

If your car is written off, in the vast majority of cases, you will be offered the “market value” of the vehicle. This can be a contentious figure, and if you find yourself in this position, you should never be shy in questioning the insurer as to how they reached their offer and to argue your point if you believe you have a fair one.

The shortfall typically arises, particularly with a new car, when a write off occurs relatively soon after buying the car. I think we all understand that the value of a car declines at its steepest as we drive it, shiny and new, off the forecourt. The “market value” can easily be several thousand pounds less than the price paid new. Gap insurance is designed to dovetail with your comprehensive insurance cover so that the overall payout you receive from both added together is more akin with what you believe will be the replacement cost of the vehicle.

What are the variations of Gap insurance?

Broadly speaking, the different variations of Gap insurance all aim to put you back into the financial position you were before your claim. However, because there are different ways of buying a car, variations have evolved to meet specific needs. Here are the main ones:

 

What are the different types of Gap insurance?

The Gap insurance market can be complex, with different providers offering their own unique products. Some of the most common policies are listed below.

“Return to invoice” Gap insurance

This is straightforward. The Gap insurance will pay an amount that will top up the main insurance payout to the amount that you bought your car for. Unsurprisingly, they will ask for a copy of the invoice.

“Return to value” Gap insurance

Similar to “Return to invoice” but instead of topping up to the amount you paid, “Return to value” will top up to the value of the car at the point of purchase. This can be of benefit if you have had the car a while, but moreso if you bought the car second hand.

“Finance” Gap insurance

This is probably the most basic and common forms of Gap insurance. It aims to help you clear any loans, finance or associated costs in the event of a claim.

“Lease” Gap insurance

If the car is leased and written off, this type of gap insurance is designed to help you pay the remainder of your contract and any early closure fees that may be applied for ending the arrangement early.

“Vehicle replacement” Gap insurance

Instead of paying an amount that will help you get to the figure you originally paid for your car, this is designed to bridge the gap between the main insurance payout and the cost of buying a new car. A lot of dealerships offer this type of product and include cover bor borrowing as well.

 

Should I take out Gap insurance?

As with all insurances, it is down to you to decide whether the cost of the cover and benefits offered are worth what you are being asked to pay for it. The chances are that you will be offered some type of Gap insurance when you buy your car. The best idea, as always, is to read the details of what you are being sold and then shop around to see what is available from the rest of the market.

Gap insurance is something to think about whilst not having an accident
Gap insurance is something to think about whilst not having an accident