Car Insurance

It is a legal requirement to have a minimal level of insurance before driving a car in the United Kingdom.  Beyond that there is a huge variety.

Types of Car Insurance

There are different levels of cover for motor insurance in the UK, and these will affect the price.

Fully comprehensive Car Insurance

The highest level of car insurance is fully comprehensive, often called full comp, insurance.  This means that almost all instances of damage are covered.  It is almost always the most expensive option.

Third Party, Fire and Theft Car Insurance

Third Party, fire and theft insurance is a cheaper type of insurance which covers “extreme” cases of loss such as your car being stolen or caught in a fire.  It also covers damage to other motorists.  It tends to be the cheapest form of insurance.

Third Party Car Insurance

Third Party car insurance covers the minimal level of insurance.  It is seen by insurers as higher risk and although there is less pay out there tends to be a lower amount of cover.

How Car Insurance is sold

There are a number of ways in which car insurance is sold, and this can greatly affect the price.

Insurance Brokers

Insurance brokers were traditionally the way in which most people brought their car insurance.  They would act as intermediaries between the car insurance provider and the consumer.  As they were professionals and had some bulk buying power they could be cheaper than buying directly.  However their commission could wipe out the advantage.

Buying Directly

There had always been the option of buying car insurance directly, but for years this could be expensive as the individual consumer did not have time to survey the whole market.  This came under attack in the 1990s with the advent of the supplier First Direct, who sold their insurance over the phone using a large call centre in Birmingham and attracting consumers through an aggressive television advertising campaign.  Their centralisation and lack of brokers meant that they could offer low prices and so got a large share of the market.  This in itself spawned a number of copy cat operations.

Price Comparison sites

The internet at first merely continued the direct buying phenomena as direct car insurers used their websites and the information gathering from them to lower further their costs.  However this changed with the advent of price comparison sites.  These sites would collect the driver’s details and compare prices offered by various insurers.  They were paid through a referral fee from the successful provider.  This meant that not all providers would be covered.  It would also mean that some prices quoted would not be offered by the provider as they would need further information that could make the consumer less eligible. 

However, on the whole, price comparison sites tend to offer the cheapest insurance.

Excess

Your excess is the amount that you agree to pay for any damage before claiming from the insurance.  This does not tend to be available on the third party element of your insurance.  A higher excess can lower your insurance.

No Claims Bonus

If you have not claimed for a number of years, you are less likely to claim in the next year.  Many insurance companies will quote a lower amount for either renewals or in some cases new business if there have been no claims in the last few years, called a “no claims bonus”.  Thus, a no claims bonus of a few years can lower your insurance considerably.

Risk Factors

Insurers look at many risk factors before they quote a price:  Among these risk factors are: 

• Where you live – Not only does this affect the likelihood of theft but also the likelihood of accidents
• Previous accidents or motoring offences
• No claims bonus
• Type of car – Some cars are not just cheaper to drive, but are also less likely to
• The age and sex of drivers – Male drivers under 25 are significantly more likely to get in an accident than anyone else
• Occupation of drivers
• Mileage
• Availability of garage or off road parking
• Fitting of a car alarm or immobiliser

Tips to Decrease your car insurance costs

Don’t simply renew your insurance with your old provider

Shop around each time you need insurance.  In almost every case you will find significant savings.

Pay for the whole year

Paying by instalments has a massive implied interest rate.  If you have any savings then use these to pay your insurance in advance.  Essentially instalments mean that you are borrowing, at a high interest rate, from the insurer.  Be careful with borrowing, but some forms of borrowing may even be cheaper than instalments. 

Consider what insurance you actually need

Car insurers are not charities and will in the long term make more out of their drivers through excessive insurance coverage than the drivers will make on excessive claims.  If you have savings in the bank, you can increase your excess and switch to third party, fire and theft.  Think of it as self insurance.

Look at your risk factors

Also state whether you have access to off road parking or the use of a car alarm.  People often don’t do this, which could cost hundreds.

Use more than one Comparison site, and then shop around

The different comparison sites have different insurers.  Enter your details into two or three and you could chop off a considerable amount on the quote.  Also go to a couple of direct insurers as well to see if they can better your offer.

The Golden Rule – Be aware

Car insurance is complex but competitive.  While this can be confusing this can give great opportunities to consumers.