Car insurance – what are you buying?

Car insurance

Car insurance

Car insurance – what are you buying

You must buy third party insurance insurance for any vehicle you drive. Third party cover means if you cause an accident your insurance will pay for the consequences. This is the insurance you must have by law, and any insurance cover you buy on top is your choice.

If want to insure your own vehicle for loss or damage in most circumstances you buy fully comprehensive insurance. It means your own vehicle will be repaired, and if written off you will receive its market value less scrap value. The policy will pay out even if you are at fault.

The trouble with fully comprehensive insurance is that it is not really comprehensive. The major problem for most people is that claiming on the policy increases your premium at renewal. If someone else is to blame you are better off getting them to pay direct, and it is here that an accident support system like Your Key will help you.

Fully comprehensive insurance does not cost much more than third party only. This may surprise you, but it is the third party risk where the bill to the insurance company tots up. So the third party insurance risk poses the greater threat of a large pay out for your insurance company.

Insurance companies understand the risks. They hold masses of data and understand the causes of accidents and claims patterns. This explains the questions you are asked when you take a quote. For instance your age and employment are used to slot you into a risk category.  The insurers assess risk and its financial consequences.

The insurance companies are under market pressure, particularly from the comparison websites. I do think comparison websites have driven down insurance premiums, but there is a risk. If we buy insurance on price rather than quality and reputation of the insurer, we will all end up with cheap policies from cheap insurance companies, and cheap insurers do not want to pay out. Looking ahead an insurer has to stick to its guns and only take business on a proper premium, or take a short term view and write business at the level the market allows, and cross their fingers.

I have always seen insurance companies as bookmakers. They try to have a balanced book so income from one horse balances the payout on another. They make the odds attractive on a horse with an outside chance to balance their book. They will also lay off their own risks, and buy reinsurance.

Insurance companies are in a difficult situation. Their cost per claim is increasing. Motorists want cheaper insurance premiums. If their driver has caused an accident the insurer has to reimburse the NHS for treatment costs, and repay State benefits under a system called recoupment. Compensation is increasing as claimant lawyers get better and more specialised. With lengthening life spans the lifetime compensation awards are increasing. One accident involving very serious injury could cost your insurance company £5 million pounds. Your bookmaker, the insurance company, might be charging you £500 each year to take that risk. When you look at what you are being covered for you might think insurance is cheap, or too cheap.

The insurance companies also have to cover those who are not insured. When insurance for vehicles was made mandatory the Government of the day said that in return for this monopoly the insurance companies would have to pick up the tab for those on the road without insurance. You may have heard about the Motor Insurers Bureau. It is the place to turn if there is no insurer connected to the vehicle which has caused an accident.

Making everyone insure makes sense. It means the consequences of road accidents do not fall on the State, although that is only true where someone else is responsible for an accident. Making all motorists insure their vehicles is an example of social engineering. If you choose to use these dangerous vehicles, and use of vehicles have consequences, so insure them so you can pay for the consequences yourself.