AROnline’s very own insurance expert and man in the industry, Mark Mastrototaro, explains how insurance works, and why it sometimes seems unfair when your policy renewal comes in and it’s not as little as you’d expect.
He joins the team to answer your insurance questions. Read, digest and get ready with your questions!
Frequently asked questions about your premiums
Even the best of us can be caught out sometimes. (Picture: NW54 London)
Motor Insurance; without doubt one of the elements of driving that attracts a good feeling of resentment. Yes it’s a running cost, like fuel, tyres, etc etc, but unlike these thinks, most of us pay for 12 months of something invisible, which is where, I believe the psychological angst we have towards Insurance and Insurers stems from. We see the tyres we buy, we see the fuel gauge creep up, but with Insurance, all we get is that letter, a few days after shelling out a tidy sum of money. Perhaps if we were provided with a translucent inflatable bubble to wrap the car in we’d feel better…. Perhaps.
There are many feelings and misconceptions aimed towards Insurance; “I’ve paid £xxxx.xx amount of the years and never claimed”, “I’m paying more than the car’s worth”, “It should be cheaper, it’s a smaller engine than the one I’ve had previously”. The list literally is endless, a problem which is not aided by the relative naivety of the consumers of insurance; for such an expensive product, which is widely consumed by the UK population, there is a frightening lack of understanding of even the basic principles of Motor Insurance.
We all know someone or perhaps even feel it personally, that we have been ‘ripped off’ or that insurance is a ‘scam’, whilst it cannot be denied that there are price differences between insurers and underwriters, to call such differences a ‘rip off’ is unfair; Insurers do not just pick a price from thin air, they ask questions which give them the facts they need to identify risk.
It basically translates to ; What is it (the Car), Who will drive it (Driver Details), What will it be used for and When (Mileage, Class of use, Commuting etc), Where will it be (Area kept, Area you live), Cover Type (Comp/Third Party F&T/TPO), What’s your insurance history like? (No Claims Discount, Claims experience).
They have historical data going back years, with their own claims experience also, highlighting the finest detail and the risk posed by such detail, this enables them to make a judgement on areas such as; (I’m not including everything here!)
- The vehicle itself;
- Claims history of the individual car – sometimes as far down as trim level -have they paid out for them being stolen, being vandalised, being in an accident.
- If so, the repair costs, the repair timescale (as this affects the cost of providing a courtesy car in the long term)
- The value – although most insurers will pay market value only, not what you paid for the car; not top book price and not your own valuation; the information is captured usually to determine if any additional security requirements are applicable. It also enables the insurer to use their system to load or discount as a result of a valuation and there are also Insurers who don’t offer cover on vehicles above or below a certain value.
- The age of the car – Again, the systems will load or discount based on the age of a vehicle, this can be particularly important when insuring a brand new car as it can trigger the insurers system to include features like ‘New Car Replacement’ (which is when, if you are the first owner of a vehicle and it is below 12 months old, rather than paying out for a total loss (write off) the insurer will simply provide you with a new car instead).
- How long vehicle owned for. This seems a silly question and I only know of a few insurers who actually use this as a rating factor, The rationale behind it does make sense though, if you are familiar with a car, then you should be better at driving it than when you jump in a different size/powered car.
- The Driver;
- Age – Broken down by years and claims experience of the Insurer of drivers within those years
- Licence Held – Both the type of licence (i.e Provisional/Full and where it was issued)
- Occupation – various occupations are higher rated because of the Loss of Earnings element for any passengers being carried which can be very high. Likewise being unemployed tends to be higher rated for varying reasons, as too does Student – living away from home.
- Claims experience – self explanatory, if you have a history of making a claim which was not the fault of another driver, it stands to reason you are a higher risk than someone who has not. Some insurers also capture the information as to the value of payouts, which can affect price or even if cover is offered at all.
- Motoring Convictions – Again, as with claims, this is self explanatory. Some insurers capture the amount of points received for a specific conviction and also the level of fine received, and can load/decline cover based on the information.
- Vehicle Usage
- Who will use it? Many insurers give a discount for Insured and Spouse policies. This isn’t unfair, it’s simply that they have had a better claims experience from that. Some also give a discount for having an older driver on their (but usually only if related).
- Mileage. Approximate annual mileage. This is just an approximation and there are few insurers who will penalise you in the event of a claim for getting this slightly wrong (ie less than 1000 miles). The pricing does tend to go in either 1 or 2k increments for discounts or loadings on this. Again it stands to reason that if the car is out on the road doing more miles, the accident risk can be higher. (that doesn’t mean the price will be, as a particular insurer may determine the theft/vandalism risk of your particular car at your particular address to be higher!)
- Class of use – Simple really, Social Domestic Pleasure, commuting, or Business use (there are different Business use classes depending on who needs to drive it).
- Cover type
- Comprehensive, Third Party Fire & Theft or Third Party Only – More and more insurers are now rating TPFT higher than Comprehensive, claims experience against policy type being the reason. Many insurers have stopped offering TPO cover at all.
- A little known couple of extra covers are available form some insurers also, which remove road risk cover, these are called ADFT (Accidental damage, fire & theft) and FTO (Fire and theft only). These aren’t available from the start of the policy, but can be downgraded mid-term and are particularly useful if a car is being taken off the road and kept on a drive or in a garage, as they are still covered against malicious damage, theft or accidents. These are very low priced levels of cover and usually give a refund to the policy of up to 90%!
- Where will it be kept
- Postcode – The old favourite! Insurers now use the full postcode to rate risk of an address. They base their judgement on many factors; Claims for theft, claims for vandalism, claims for accidents and crime rates/areas of civil unrest etc. You may have bought a nicer house in a nicer area BUT if 5 of the neighbours have all claimed for incidents at the address (hitting the gatepost, vandalism in the night etc etc) you could end up discovering the address is higher rated than you thought. These are regularly reviewed and can change monthly.
- Drive, Garage, Street, Car Park etc – Not always clear cut, again if, in a particular area more claims have been made in garages than on drives, garages will be higher rated. Also – if your car is in a garage block, you must give the postcode of the garage block as the one where the vehicle is kept.
- No claims discount
- This is the overall discount applied once everything has been calculated. All insurers vary in terms of what a year = in terms of discount but it’s usually not far form the following;
- 1yr – 30%
- 2yr – 40%
- 3yr – 50%
- 4yr – 60%
- 5yr – 60-65%
As I’ve said this isn’t exact but it’s usually around that. ‘Full’ no claims is usually at the 4th year and this is the point you will be offered the option to Protect your bonus.
- Protected No claims is probably one of the most misunderstood elements of car insurance. The cost varies but is often between 12.5%-17.5% (but more often than not 15%).
Put simply; it does not protect your premium. It protects the level of discount you are entitled to at the end of the rating process. So if you have made a claim, it will have loaded the policy before your discount is applied. For example;
- Say you’re entitled to 60% discount of a premium of say £1000.00 before you had a claim, you’d pay, £400.00.
If you have a claim and protect your bonus, you’ll be entitled to 60% still but the premium before bonus may now be £1500.00 so you’d pay £600.00
If you had a claim and didn’t protect your bonus, you’d be entitled to 40% usually (stepped back from 5 to 2 years but some companies vary) so it’d be 40% discounted from the £1500.00 meaning you’d pay £900.00
When you consider you’d pay 15% of the 400.00 originally to protect your bonus (£60.00); that spend of £60.00 could save you £300.00. You’re technically insuring your insurance.
Everything I’ve written is very much generic and peoples own individual experiences obviously speak for themselves. All I’ll say is, whatever reservations and bad feeling you have directed toward the Insurance market, just try to be a little more open-minded and consider what’s been written; remember, the Insurance companies aren’t charities, they’re not Government run and they have overheads like anyone else. You motor insurance isn’t a savings scheme that you’re ‘entitled’ to claim from as ‘you’ve paid enough over the years’ it’s more like a co-operative if anything. It’s a big pot we’re all paying into, to make sure people are protected and have some way of being protected, whether they’re at fault or not.