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.