I’ve heard endless complaints recently from people shocked who’ve just got their car insurance renewal notices. Last year most of them spent some time on the internet making sure they got the best possible deal.
But now they are finding that the cost of their policy has gone up massively – sometimes by well over 50%. And they’re shocked.
They shouldn’t be. Outraged, yes. But not shocked. No adult who has ever dealt with a financial institution of any kind should ever be remotely surprised to be hit by this kind of thing. It is standard stuff for the industry.
The aim of most banks and insurers is basically this: to lure customers in with great deals and then to exploit their apathy. Take mortgages.
You get a great deal for two years with a discount to the Standard Variable Rate or a low fixed rate. Then when the two years are up you are automatically moved over to start paying your lenders SVR which is usually about 2% above the best deals on the market. The banks’ plan? To hope you don’t notice or that if you do you never get round to doing anything about it.
The same is true of credit cards. When you switch to a new one you get an interest free period for 6 months, maybe even a year. Then when the teaser period is over, wham: you get hit with the usual whopping credit card interest rates. Instead of paying 0% you’re suddenly paying 20%.
Again, the bank has its fingers crossed that rather than bother to do the admin to move again you’ll just pay up and they’ll make good any losses they might have made on you during the interest-only period.
Car insurance is no different. It’s a hugely competitive market and all the providers are desperate to get themselves on to the best buy tables in the newspapers and on the internet. To do this and so as to get new clients in they slash their prices – often down to levels that make them no money at all – for the first year you are with them. Then when renewal time comes around they just hike the price and hope for the best.
If you can’t summon up the energy to change insurers they’ll make a killing on your new premium and recoup the losses they made on you in year one. And if you can, at least they’ll stop losing money on your overly cheap policy.
The solution to this is obvious – eternal vigilance. Never just pay up when you get your renewal notice. Instead, when it arrives or even before (the insurers often send them out quite late in the day in order to give you as little time as possible to respond before the next direct debit goes out) go straight to the price comparison sites on the internet (www.confused.com and www.insuresupermarket.com are good)
Put in your details and find out what the best deals are. Then go back to your current insurer and ask them to meet it or beat it. If they can’t or won’t, just move providers: doing so will not only give the pleasure of thwarting your current issuer’s plan but should also cut your bill by an average of about 30%.
If even after this you are paying more than you would like for your insurance (and prices have been going up across the board thanks to general inflation and to the rise in uninsured drivers), you need to approach things from a different angle.
For starters, make sure you never agree to pay for your insurance in monthly instalments – this is just asking to be ripped off: on average it costs about 20% more to pay for insurance monthly than it does to pay for it all in one go. Given that most credit cards charge interest rates below 20% this means you’d actually be better off paying for your insurance on your credit card and then paying that off over the year! Who’d have thought there’d be something out there so expensive that it would make a credit card look like value?
The next thing to bear in mind is that insurance is all about risk. The higher risk the industry perceives you as being the higher your premium is going to be. So to cut your costs you need to be seen as low risk.
This means keeping your car off the street, fitting an alarm or an immobilizer, driving carefully (the more speeding tickets you get the more your insurance is going to cost) and picking a car with a reasonably small engine (to your insurer anything sporty just spells danger).
Being a woman or adding a woman to your policy as a named driver also helps. Whatever the male population might like to think the truth is that we have fewer accidents than men and are lower risk for it….
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