Your Money: Watch the road, here come the bumper rises

Insurance: in the second part of our series, we show how to find good-value cover for your car as premiums start to soar
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The Independent Online
Bad news for car drivers: insurance premiums are already rising and look set to increase much further over the next few months, particularly at the cheapest end of the market (although the article on the right shows how disabled people might soon find easier and cheaper cover).

"We expect the cost of the `best buy' policies to go up by 15 to 20 per cent over the next four to five months," predicts James Wootton, director of insurance broker Motor Advice. And there's already been a general hike in premiums since their summer low point: according to a recent survey by the Automobile Association, the average cost of comprehensive insurance went up by 6 per cent between the start of July and the end of September.

The news is not all bad, however. The ferocious competition between insurers means there is a swath of special offers and discounts available, providing good potential savings for anyone who gets a reasonable number of quotes before renewing a policy.

Mr Wootton says: "The most expensive policy typically costs twice as much as the cheapest one. In some cases, such as insurance for a second car, the gap can be much wider."

Finding the best insurance policy is not always easy. For a start, several cheaper insurers will only sell to certain groups of people. For example, the UK's largest car insurer, Direct Line, only covers around two thirds of the market; anyone deemed too high a risk, such as a young man driving a high-performance car, is referred to its sister company, Privilege.

The search for a cheap policy is complicated by the fact that insurers use around 13 different factors to decide premiums. One of the key ones is the type of car you drive. It may be some consolation to anyone in a Fiat Panda who is cut up by a Porsche 911 to know that their cars, respectively, come in the bottom and top-risk categories.

As well as type of car, the factors used by insurers include: the age of your car; your age, sex and occupation; where you live and where your car is kept overnight; and whether you have made any recent car insurance claims or have any motoring convictions.

With hundreds of insurers all pricing each of these factors differently, the task of getting a good, cheap policy might seem insuperable. But getting a reasonable quote is actually fairly easy. Insurance brokers will provide quotes for free. You can look up a local broker in the Yellow Pages or try a nationwide firm such as the AA, Countrywide, Jardine, Royal Automobile Club or Swinton (telephone numbers below).

But a broker generally won't cover the entire market. In particular, it won't quote for "direct writers" - insurers such as Direct Line which sell relatively cheap policies without using a middleman. So it is worth getting a few quotes from direct insurers as well. Direct insurers offering some of the cheapest deals include Churchill, Guardian Direct, Norwich Union Direct, Preferred Direct and, for higher risks, Admiral.

When phoning around, bear in mind that the cheapest policy is not necessarily the best. The type of cover falls into two main categories. The cheapest is third party, fire and theft, which pays for damage you do to other cars or people, as well as damage from fire or theft to your own car. The second, more common, type is comprehensive cover, which pays if you damage your car in an accident that is your fault.

There are lots of smaller distinctions between the cover different insurers offer, particularly on comprehensive policies. Some of these extra bits of cover, such as a hire car if your own car is off the road, might not be important to you. Others, such as cover for a stereo, might.

Other ways you may be able to cut your premium include:

q If there are only ever two or three people driving the car, get cover for those named drivers only, rather than for any driver. "Insurers charge more for `any driver' policies because they're worried about the practice of `fronting' - where the car owner gets a policy on behalf of someone who is a very high risk or uninsurable," explains a spokesman for Direct Line.

q Many insurers will offer lower premiums if you agree to pay a higher excess.

q There is a wide range of special deals for people in certain occupations, including bank staff and police officers, or members of special interest groups, including the Institute of Advanced Motorists and Neighbourhood Watch schemes.

q Fitting a security device could get you a discount of between 5 and 17.5 per cent, according to the AA, but check what devices the insurer accepts. In general, things like wheel-locks that work only when the driver can be bothered to use them will be worth little, if any, discount. Immobilisers and alarms are more valued by insurers.

q If you are switching from a company car to a private one, and you have got a claims-free driving record, some insurers will offer you a no-claims discount (see box). Similarly, "some insurers will offer discounts for people who have a claims-free record on someone else's policy, such as children covered by their parents' insurance," advises Philip da Silva of broker Premium Search.

q Contacts: AA (0800 444777); Admiral (0800 600800); Churchill (0800 200300); Cornhill Direct (0800 607070); Countrywide (0800 605040); Direct Line (0181 686 2468); Guardian Direct (0800 282820); Jardine (0800 445444); Motor Advice (0500 647005); Norwich Union Direct (0800 888111); Premium Search (01604 644888); Preferred Direct (0800 850750); Privilege (0113 292 5555); Swinton (0800 600700).

q Jean Eaglesham works for `Investors Chronicle'.

The no-claims discount

The no-claims discount (NCD) is a simple concept which can be horribly complex in practice. It is important to understand if you do not want to lose hundreds of pounds by claiming when you would be better off not to, or vice versa.

The idea behind the NCD is that anyone who has not claimed recently on their car insurance is likely to be a safer driver than someone who has, and so should be charged a lower premium.

The system works on a snakes and ladders approach. Each year you do not claim is a ladder. Insurers will typically offer 30 per cent off the premium after the first year, building to a maximum of 60 to 65 per cent after five or six years.

Each accident you have which was your fault, or where it is not clear who was to blame, is a snake. Usually, you lose two years of NCD for each such claim. So it is sometimes worth paying for relatively small repairs yourself.

It may be worth insuring your NCD. This adds around 15 per cent to your premium but allows you to make a few claims without affecting your discount.