MVRUS - Insurance

In 1930, Parliament decided that all motor vehicle owners must be adequately insured in an attempt to prevent anyone injured in a road accident being uncompensated due to the inability to pay of a negligent driver.The duty of being insured falls upon the driver of the car. It is wrong to think, therefore, of a car being insured.

It is in your interest to understand how insurers evaluate risk and the information which you can give them to help convince them that you are as low a risk as possible. Insurance can be very expensive, so low risk means you pay less for your insurance.

Premiums are related to risk. A general rule is that young drivers driving powerful vehicles will pay a high price for insurance. Business use will attract a higher premium, as will specialised use e.g. motor racing. Special types of car which will be costly to repair or to replace attract higher premiums. Insurers group cars by class, the range being 1 to 20. The higher the class, the more expensive it will be to insure.

The basic legal requirement is that a person using a vehicle on the roads should be insured against death or injury to third parties.

The trend in car insurance today is to have all policies comprehensive. Note: with Comprehensive Insurance, personal injury cover is limited. You should ask questions of the insurer.

The following information is reproduced with permission of Ian Hunter of Carsource.co.uk. It is sourced from many different companies associated with the field of insurance.The information is intended as background reading only.

The Theory

Probably the most valuable asset you own, after your actual car, is your No Claims Bonus (NCB). With a full five years of claim free driving behind you, your NCB can be worth up to 65% off your year's insurance. The whole idea behind the bonus is that it is one measure of the risk an insurance company is taking on when they give you a quotation for your insurance. It is the number of years that you have been driving without making a claim, or at least making a claim that couldn't be attributed to someone else. By giving you a discount off your premium based on how many claim-free years you have had, the insurance company is rewarding you for a careful driving record.

Every insurer has their own scale of No Claims Discount (NCD) ranging from 0 years NCB up to a maximum of 4 to 6 years NCB (depending on the insurer). A typical scale would be:

Every insurer is different though. For example, some insurers will offer a 70% discount if you're over 50 with 5 years or more NCB.

Why your No Claims Bonus is so valuable

Your No Claims Discount is applied to the initial premium that has been calculated from all the questions that you have answered for the insurer. The resulting premium is the one you are then quoted.

For example if the answers to all the questions resulted in an initial premium of £1,000 and you had a 1 year NCB then the insurance company would do the following calculation:

1 year NCB = 30% NCD.

30% of £1,000 = £300

Quoted price to you is £1,000 - £300 = £700.

You can see that with 3 years NCB at a 50% NCD, you would only pay £500. A full 5 years NCB can save you a lot of money!

How do you lose your No Claims Bonus

Basically your No Claims Bonus is just that, a reward for not making a claim.

In insurance jargon, any claim you have to make is classed as either a Fault claim or a Not Fault claim. If your claim is classified as a Fault claim then you will lose some or all of your NCB. It is not affected if you have a Not Fault claim.

So who makes the all important decision about whether a claim is Fault or Not Fault?

Well, it's not as simple as who was to blame for the accident. The rules are as follows:

Fault:- If you register a claim and your insurance company is unable to recover the full cost of your claim from someone else, then is is classed as a Fault claim and your NCB is affected.

Not Fault:- If you register a claim and your insurance company is able to recover all the costs from someone else then the claim is a Not Fault claim and your bonus will not be affected.

By this definition you can see that if you hit a wall after skidding on black ice, because there is no one else involved, even though you were not to blame for the accident, your insurance company will not be able to recover the costs they paid out to fix your car (and probably the wall) so you will lose some or all of your NCB.

Similarly if your car is broken into - it's not your fault but the insurance company can't recover the money from anyone else (unless they catch the thief!) so your NCB will be affected.

Consider the situation where two cars are involved, even though one driver always thinks very clearly that the other driver was at fault, unless an insurance company can prove beyond a doubt that one driver was totally to blame then they will often settle a claim with the other insurance company involved on a 50:50 or an 80:20 basis. So not all the costs will be recovered and both drivers will lose some or all of their NCB.

These cases can often drag out as one insurance company negotiates with another. As far as you're concerned, your car was fixed and it's all over but sometimes it takes time for the insurance companies to finally decide 'FAULT' or 'NOT FAULT'. You should be aware of this because until it is sorted out, your NCB is affected - even if they later reinstate it. If your renewal occurs and the claim is still being sorted out then the renewal premium will be higher than expected because your NCB has been reduced. Even if you decide to change insurance companies at this stage, you must tell your new insurer the situation and they will also quote you on a reduced NCB. However it can be reinstated later once the claim is settled. (Be warned that if the settlement has dragged on it is unlikely to be settled totally in your favour).

With most insurance companies you will lose two years NCB if you have a FAULT claim.

One exception to the rule is that windscreen/glass claims by themselves very rarely affect your NCB (but check with your insurance company).

Protecting your No Claims Bonus

Many insurers now offer a scheme whereby you can protect this valuable asset, your NCB. The rules vary from company to company but generally you should try to protect your NCB as soon as possible.

Why?

Well, by protecting your NCB, you are protecting yourself against having to make a claim. By paying a little extra for a protected NCB, you are ensuring that your bonus will not be reduced as the result of a FAULT claim. The number of claims you can have varies from company to company.

Protecting your bonus does not mean that you can stop a price rise at renewal. Often you will find that you are paying more the year after a claim because the risk of insuring you has increased. However, if you had lost your NCB as well then your premiums would skyrocket.

Also remember that the year after a FAULT claim, if you decide to change insurance companies, you may not be eligible to protect your NCB with your new company because you had a claim in the last 12 months.

This is the part of car insurance "science" that is evolving most rapidly at the moment. So what's the current state of play and where are we going ?

In general, insurance rates are lower in rural areas than in cities, with the highest rates of all being found in certain inner city areas. There are two main reasons for this:

As recently as 5 or 6 few years ago the industry assessment of risk by area was sometimes not broken down into much more detail than above. As an example , a county as large as Lancashire was only split into two areas - North and South of the river Ribble - by most insurers. By contrast, for some insurers, the Greater London area was divided into as many as twenty different areas. Even allowing for population differences between the two areas in question, this still left quite a difference in the degree of analysis of the two areas.

As technology has become both more sophisticated and more available over recent years, insurers are now able to take postal codes into greater account to access insurance risks. In fact we already have most companies assessing post codes down to the second part of the code and within the very near future, assessments will actually be made by all insurers on the whole of the post code; in other words right down to street level.

( So already a comparison of the same car when driven by the same driver at two different post-codes in a similarly built up area gives a comparison of the car crime rate. Useful to know when considering two adjacent areas for a prospective house purchase !!!)

There are though significant individual circumstances which are still given little regard by some insurers but which can make large differences to the premium level of the policy. If, for example, somebody lives in a rural district but commutes every day into an inner city area, they will probably be paying a lower premium than somebody that lives in a higher rated district.

However, it could be that whilst you live in an inner city region, your vehicle is garaged overnight and you use the car to go to and from work in a rural area. Reductions of up to 15% in your premiums could be achieved simply by choosing a policy that allows fully for these circumstances.

As a possibly even more extreme example, suppose that you live in an inner city area, but your vehicle is garaged when at home and kept in either a guarded or locked compound while at work. Again, reductions of up to 15% in premiums are possible, but more importantly the daytime security factor will even sometimes make the difference between an insurer accepting or declining that application.

The message again is clear. If you think you are being unfairly penalised because your circumstances are different to the typical person in your area, make it clear to your broker - you've nothing to lose, and much to gain.

There are a number of occupations that are classed as higher risks with different insurance companies, examples of which may be bar staff, persons working in the catering trade, professional sportspeople, entertainment industry, building and allied trades the list goes on and on.

Why is that that some are discounted and some are loaded?

Insurance companies closely monitor their claims statistics across a whole host of insurance rating factors one of which is a customers occupations.

Generally if you are in a sedentary occupation, e.g. an office job, you will receive a discount of some kind. On the other hand, if you use your car as part of your job, you're likely to pay an increased premium. Sometimes the reason for discounts and loadings where an occupation is concerned are not quite as obvious as you would think.

Take the example of bar staff. You may think that some insurers charge more because after their work they may have a drink and drive home. But think about where their car is parked whilst they're at work, more often than not the pub car park therefore increasing the chances of it being stolen.

What about professional sportspeople and entertainers? Well this is where insurance companies sometimes take quite a blinkered view. If you are a professional sportsperson it is obviously more likely that you could have a passenger with you who is also in professional sports and potentially a very high earner - should you have an accident that is your fault and that person is injured your insurance company could potentially be faced with a claim that runs into millions of pounds.

Why building and allied trades? Some insurance companies do load people that work in this area, sometimes their view is that the vehicle may be used for business use travelling to and from different sites, travelling to and from peoples houses to do quotations and so on and therefore more likely to be involved in an accident.

Other than changing job, what can you do about it ? Well, if your behaviour is like the "typical" person that has led the insurer to charge a premium, then not much. But what if, in the last example, you also have use of the work van and therefore you don't ever use your car for work ? If you can satisfy your insurer that this is the case, then the extra premium may be waived.

The key is to understand why your job causes the premium and then explain to your broker if your case is not typical.

Crime statistics show that a car is stolen in Britain every minute and one in four cars is never recovered by its owner. So what can you do to prevent this and keep your premiums down ?

Some insurers will give you a discount if your car is garaged at night. Some will even refuse to quote for certain cars in certain areas unless the car is garaged overnight. But this still leaves the daytime or when you're not at home?

It's worth knowing that more and more companies are offering premium reductions if you have a security device fitted to your car. Discounts as high as 20% can be offered if you have an approved immobiliser and alarm fitted.

Some companies will go even further than this. They'll give you back your no claims bonus and ignore the claim. The reasoning is simple - if you've had your car stolen, you're likely to be more security conscious in future and fitting an immobiliser makes it so much less likely your car will be stolen again.

Costs for a decent approved immobiliser start at around £99 so they're not ultra expensive either - in fact the premium saving can more than cover the cost of installation.

A good question and one heard often, especially from guys moaning about 'women' drivers. The answer is that statistically speaking women are seen as safer drivers. Now that answer, to a male audience, generally brings derisive hoots and reminiscences and generalisations about women drivers. However the facts speak for themselves and are derived from the collection of claims data over several years - decades in fact by car insurance companies.

Women, generally speaking, do have the same number of accidents as men but it's the severity of the accident that is very different between the sexes. Typically an insurance company has to pay out a lot more to fix a car when a man has had an accident - the car has to be extensively repaired or even written off. Women's accidents tend to require less repair because their accidents are often caused by bumping into somebody, reversing into the garage - that type of thing.

Why is that?

Well women traditionally are seen as having a different pattern of driving. They drive shorter distances, have lower annual mileages, tend to drive slower and it is true that men are convicted of 92% of all driving offences (And 98% of all convictions for dangerous driving which might explain why when they crash a car they make a good job of it!).

Given these reasons for different driving patterns and the actual claims experience of an insurance company you can see why the insurance company will decide to generalise that women drivers are 'safer' and hence lower their premiums. The difference between the sexes is at it's height in their late teens and twenties. Over 30 and things tend to even out and over 75 men are often regarded as the safer risk (but let's not get into an ageism argument here - I am having enough trouble with the sexist issues!).

Things could well change though. A survey by the AA last year showed that 54% of women admitted to aggressive driving behaviour compared to 64% of men and it is also true that many women are now driving longer distances and at higher speeds. But until the statistical evidence shows that there has been a swing, insurance companies will still rate women differently from men.

So what can male drivers do about it?

Well, you could consider a car with a smaller engine, an older model or try getting married - from an insurance company's point of view, marriage confers you immediately with the aura of being a safer driver (now don't shout at me - this is what the statistics for claims accidents say!!!). According to the AA, the safest motor insurance bet is a 55 year old woman driving a small 10 year old car so other than changing sex and growing old I am afraid you younger male drivers will have to put up with it!

Insurance premiums are normally higher for people who haven't built up a driving record, especially for younger drivers, but it's worth knowing that different companies like to insure different age groups irrespective of the length of driving experience.

For example, older drivers tend to act more responsibly behind the wheel. They have fewer accidents and so make fewer claims. If you're an older driver, you could be paying over the odds if the insurer you're with insures everyone. This is because you could be subsidising the premium of a driver in a higher risk category.

There are though some factors which affect older drivers more than other motorists - one of the more significant ones is your eyesight. A recent survey of the drivers union involving 7750 motorists at motorway services, carried out by Aston University and sponsored by Vauxhall, was said to be the largest ever eyesight checking operation in Britain and produced some alarming results.

It was discovered that 16 in every 100 motorists tested could not read a car number plate at the 25 yard distance specified for the driving test. Among the 21-25 year olds, the failure rate was a surprisingly higher than expected 10%. Figures rise only slowly up to the 46-50 age group whose failure rate was 15.4% and from this point quite steadily up to a failure rate of 43.5% for 66-70 year olds.

This research endorses work carried out a year ago by City University and sponsored by the Autoglass windscreen company. It assessed that as much as 90% of driving information is visual and concluded that, based on the representative test sample of 299 drivers, there are 3.5 million drivers in Britain with eyesight which fails the current driving test standard. It noted that one in five drivers tested had vision in one of their eyes which would fail the standard.

Initial conclusions from the Aston survey are that there is a clear correlation between defective sight and avoidance behaviour. People with vision below standard tend to drive slower on motorways, are less likely to drive at night and avoid difficult conditions such as fog. This is more common among older people, but seems to be related more to eyesight than to age.

If you don't yet wear glasses, keep an eye on the legibility of number plates. If you find yourself growing more reluctant to drive on motorways or at night, perhaps you should book an eye test before blaming it on your age.

It's worth pointing out that vanity or negligence increases the incidence of people driving with defective sight. In the City survey 34 % already wore glasses and 2.7% wore contact lenses. As many as 14% admitted not having had an eye test for over a decade with another 30% not having had an eye test for over 2 years. The maximum recommended gap between tests is two years and ideally it should be annually.

Even worse, half of those who should wear glasses or lenses for driving admitted that they sometimes fail to do so. Anyone following this example should watch out if they are heading for Devon & Cornwall on holiday where police are making random checks on eyesight, using the usual numberplate test. We hear they are not amused, or swayed, by people with spectacles in the glove compartment who are not actually wearing them !!!