Midweek Money: Ensure you insure wisely

Competition is fierce in motor insurance but it may benefit the clever customer.
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The Independent Culture
THERE IS good news on the car insurance front - and bad news too. The good news is that premiums are being pegged at a low rate. The bad news is that motor insurance companies are desperate to hike up prices - though heavy competition means that, for the moment, they are unable to do so.

As Alex Lovesey, from Hill House Hammond, an insurance intermediary, says: "There is always talk [within the industry] that rates have got to harden. Reports have suggested that premiums need to increase by at least 10 per cent on motor policies. But statistics say that this is not really the case."

Miranda Seymour, from Direct Line Insurance, says: "Over the last two to three years, the market in motor insurance has become fiercely competitive." This ensures that companies cannot raise their rates for fear of being undercut by another company.

More potential good news for the consumer is that Barclays Bank has teamed up with Privilege Insurance, to enter the motor insurance market with an offer to undercut all its rivals' renewal premiums. Bob Dench, managing director of Barclays Insurance Services, says: "Banks are traditionally seen as quality insurers, but not at a competitive price. Barclays seeks to change this image." This guarantee will apply for the first 12 months' premiums.

Mr Dench adds: "The industry will have a dreadful time matching this product if it takes off, because if they try to take us down on price, that guarantee is there for next year."

However, Judith Price at Swinton Insurance, an insurance intermediary, warns: "Many in motor insurance would say that this is the road to ruin and it simply cannot be sustained. From my understanding of the Barclays offer, it is an opening offer - it is not an intention that they will always be the cheapest. We would say to any customer that went to them: `We will see you next year!'."

As many motorists may have discovered, there is the danger that insurance companies will use discounted introductory offers to get customers on board, only for the customer to find that, the following year, their premiums have substantially increased. Alex Lovesey says: "This is something that we did see happen when direct insurers first started to come into prominence."

However, Bob Dench, at Barclays, replies: "We have not just done this to push up prices next year." However, before taking out insurance, it would seem that it is important to look past the attractive introductory package to what the renewal rate will be the next year. Bob Dench adds that Barclays can make its offer by saving on advertising costs. The bank already has a large customer base, with 6 million customers and 7 million Barclaycard holders. These clients will be targeted first. Bob Dench says: "Competitors will spend, for example, pounds 25m on advertising. If they attract 500,000 customers, each one will have to pay an extra pounds 50 on their policy to pay for it."

Despite cut-price offers from direct insurers, such as Direct Line, Churchill, and now Barclays, many customers prefer the service they receive from insurance brokers and intermediaries. This is partly because brokers are able to shop around for the best deal, so the quotes they get often undercut those available from the direct insurers.

Brokers also offer face-to-face consultations, unlike direct insurers. Ms Lovesey, at Hill House Hammond, says: "We are able to offer a face- to-face [approach] in our 250 branches across the country, or a telephone service. However, our research has shown that 30 per cent of people, whether they want to go into a branch or not, like the fact that it is there. They can build up a personal relationship with the people, which may be especially welcome when they have a claim."

Although the motor insurance industry is price-driven, with the majority of customers most concerned about how much they will have to pay, there are other aspects to consider. Sue Winston, at Norwich Union insurance, says: "The Barclays offer seems to be very much based on price competitiveness. The market is a large one, there is plenty of scope for people to offer a variety of different customer propositions. Our customer proposition is very much based on the quality of service and the add-on benefits we provide."

Bob Dench, however, says that Barclays has taken the best aspects of the other insurance companies benefits packages and put them together, to deliver cover that is "as good as the best and better than the rest".

Irrespective of the reassuring words of Barclays, and other competitors who want you to go to them direct, it is always a good idea to shop around for both the best price and benefits package to suit your needs. As the market is so competitive, companies are eager for your business. Don't be afraid to go to companies with offers from other dealers. You may just find that the cost of the premium they initially quote will suddenly reduce in size.