Car insurance companies are as popular as banks but life would otherwise be difficult. Without insurance, we would have no option but to carry the full cost of a catastrophic event (house burning down, car getting nicked) on our own. This is okay if we’re really rich, poor or lucky, but not so good the rest of the time.
Instead, insurance allows us to share the risk of something bad happening with other people, by each paying a premium into a much larger pool of money, out of which those poor unfortunate people who do suffer a big loss are reimbursed.
Premiums are set according to the expected outgoing costs from the fund – how many cars in total are likely to get nicked – and individual risk: how much more likely is if your car will get nicked compared with, say, your mum’s Corolla. The value of your car can also be a factor.
Complaints about insurance companies usually centre on the exorbitant cost of the premiums, or the shortfall between actual and expected payouts when something does go wrong.
Insurance companies aren’t charities but if they get greedy and overcharge on premiums, their customers will go elsewhere, just like any other business. Well, that’s the theory and it’s the practice too if we shop around and compare prices, which these days is as easy as typing ‘car insurance quotes’ into Google, you can easily find a better than average deal.
Insurance companies increasingly specialise in market segments and some may not particularly want your business, in which case they’ll quote an uncompetitive premium. This is especially the case for younger drivers and older cars, which is why specialist insurers like Shannon’s (modified cars and classics), Piranha (race cars) and Just Car (young people) were made for people like us.
If the premiums are too low, the insurance company will get a lot of business but will eventually go bankrupt when the claims exceed premium income. This is what happened to HIH Insurance, and it caused enormous hardship to a lot of people whose valid claims could no longer be met.
When setting individual premiums, insurers assess risk by reviewing claims made in the past. The key determinants that insurance companies have found useful in predicting future claims are the make and model of the vehicle; its age; business or private use; locality; driver age and record; car finance; modifications; and previous insurance history. Occupation, anti-theft devices and number of kilometres travelled may also be relevant.
Insurers reward loyalty and good claims records with ‘no-claim bonuses’, which can reduce your premiums by up to 65 per cent. Typically, a discount of 20 per cent is offered on comprehensive insurance after one year, then 10 per cent per year after that. In many cases, these no-claims bonuses are transferable, and further discounts may be available from specialist insurers for multiple cars.
Premiums are also affected by how much ‘excess’ you are prepared to pay: a standard policy may require you to pay for the first $1000 worth of damage, which you can reduce by paying a higher premium. Vehicles with notoriously high theft histories typically have very high excesses, as do young drivers.
Most disputes arise when there are shortfalls in expected payments, or claims are refused entirely; the devil is often in the detail, so it always pays to read the fine print. In 60 per cent of complaints, people think they are insured for a particular event and find they are not – third party insurance is a classic example – so take a careful look at the type of car insurance you have, what they cover, and be sure to compare other providers to see what is on offer.
