Drive a bargain with car insurers

Scare stories make many motorists grateful when they find only small rises at renewal time. That can be an expensive misconception

Many drivers fail to shop around for insurance at renewal, deceived by wildly inaccurate forecasts in the past nine months about potential premium increases. There is a temptation for policy-holders who are quoted less than they had anticipated by their present insurers to assume they are getting a highly competitive deal. This is not always true.

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Many drivers fail to shop around for insurance at renewal, deceived by wildly inaccurate forecasts in the past nine months about potential premium increases. There is a temptation for policy-holders who are quoted less than they had anticipated by their present insurers to assume they are getting a highly competitive deal. This is not always true.

The 11 September atrocities left the insurance industry with heavy losses, and there were widespread warnings that policy-holders should expect increases between 15 per cent and 40 per cent. In reality, the average increase has been nearer 5 per cent.

Many experts feared motor premiums had reached unsustainably low levels. Claims costs were rising in a growing compensation culture, leading to more claims, and legislative changes which enabled the National Health Service to recover from insurers the costs of treating accident victims.

Insurers have drawn on reserves, and new entrants to the market have increased competition levels. But The Independent's investigation shows a growing number of insurers are hiding premium increases in the contract's small print.

The AA's British Insurance Premium Index, which measures 34 comprehensive risks, shows the cost of comprehensive car insurance rose by only 0.9 per cent in the first quarter this year. The AA is expecting the figures for the second next month to show a rise of between 1 per cent and 2 per cent. Even the 12-month period to the end of March showed a rise of only 5.63 per cent, compared to annual rises of 9 per cent and 19 per cent for 2001 and 2000.

Adrian Parry, managing partner at Direct Choice, an insurance broker in Newmarket, Suffolk, said: "My firm's phone inquiries for new business have halved. This is fairly typical of what has been happening industry-wide. Some insurers are reviewing advertising and not replacing staff who leave.

"People seem to think there is no point shopping around because their renewal notice wasn't as bad as expected. They are often paying far more than they need to. In many cases we are able to secure premium reductions for those we rebroke to other insurers."

The fundamental message to anyone requiring motor insurance remains the same. Consider if it is worth switching at renewal by shopping around at least one broker and several direct-selling insurers. Those covered by direct-selling insurers are the most likely to lose by not making enquiries. Direct players can offer the products of only one company, and if their renewal rates are not competitive they are obviously not going to volunteer the fact.

Brokers can choose the best deals from a wide range of insurers and many will automatically shop around for you at renewal if you ask. The national broker, AA Insurance Services, even suggests that the drop-in shopping around at renewal is being made worse by dubious tactics being employed by the direct-selling insurers. It is picking up anecdotal stories from customers about direct players talking up industry-wide premium inflation to make their own moderate increases seem highly attractive.

Direct-selling insurers are still capable of undercutting insurers who sell through brokers, but they are not able to boast a price advantage across the board, as tended to be the case in the late Eighties and early Nineties. Originally, the direct players enjoyed the edge on price and service because they did not pay commission to middle-men and they used sophisticated computer systems.

As more players entered the market, much of this advantage has been eroded by the need to spend heavily on advertising to acquire business. And brokers have reduced their operating costs and narrowed the gap in service standards by investing in new technology.

Many brokers will provide objective advice on the suitability of policy wordings. Motor policies are including an ever-increasing number of small-print variables that push up the effective premium or reduce the chance of a payout. Policy-holders who shop around on their own among direct selling insurers can easily come unstuck.

Several direct-selling insurers charge extra for drivers requiring comprehensive cover in Europe for more than three days. Some impose a higher than average excess, the first part of a claim policy-holders are required to pay. Direct Line and Churchill Insurance now automatically quote with excesses of £150. Most other insurers have an excess of £100 or even £50.

Direct Line and Tesco Motor Insurance, unlike nearly all other motor insurers, do not cover the costs of a courtesy car at the claims stage on comprehensive policies, although they will arrange for car hire fees to be paid if you have an accident that is not your fault.

With hire costs often £40 a day, such an exclusion can effectively amount to an additional excess of around £500 for a policyholder whose own car is out of action for two weeks while being repaired.