Motor insurance – what are you buying


You must buy third party insurance which means if you cause an accident your insurance will pay for the consequences.

If your own vehicle is to be insured in most circumstances then 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 trouble with fully comprehensive insurance is that it is not really comprehensive. Claiming on the policy increases your premium at renewal, so if someone else is to blame you are better off getting them to pay direct, and it is here that Your Key can do the work for you.

Fully comprehensive insurance is not much more expensive than third party only, the reason being that the third party risk poses the greater threat of a large pay out for your insurance company.

Insurance companies understand the risks. They hold the statistics which show accident and claims patterns. That is why they ask all those questions at the start, including your age and employment, as all these factors help them slot you into a risk category.  The insurers use actuaries to assess risk and its financial consequences. They also have market pressure, particularly from the comparison websites, which are driving insurance premiums down. An insurer has to stick to its guns and only take business on a proper premium, or write business at the level the market allows, and hope for the best.

Insurance companies are like 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 of their own bets elsewhere, which in the insurance world is called reinsurance.

Insurance companies are in a difficult situation at the moment. Their cost per claim is increasing. They are paying for NHS treatment necessary after an accident where their driver or rider is at fault. When compensation cases are settled the insurer reimburses state benefits paid out after accidents. 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. Its is part of social engineering which says you choose to use these dangerous vehicles, the vehicles have consequences, so insure them so you can pay for the consequences yourself.