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Posts Tagged ‘car insurance’

There are an estimated 550,000 whiplash claims made each year, many of them for amounts less than £5,000. Yet for each £1 paid out in compensation the insurance industry (at least Aviva) claims that another 82p has to be found to meet the costs of middlemen lawyers and claims handlers.

Such is the scale of this ‘industry’ that an average of £118 a year is piled onto to each motoring policy to pay for it.

Now Aviva wants to cut out the middleman and see a change in the law that would mean drivers seeking compensation have to go straight to the insurer of the at-fault driver.

Aviva says that all motorists benefit because of lower premiums. It also insists – going by current experience – that the size of payout for a legitimate claim would be the same, perhaps slightly higher, than one obtained by the help of independent lawyers.  What they didn’t quite answer when I spoke to Aviva was whether the overall number of payouts would fall because either drivers were put off going straight to an insurance company (also, Aviva couldn’t completely explain how the process might work – would it literally involve an injured party themselves writing to the at-fault driver’s insurer?) or because they lack the legal knowledge to ask for what they are entitled to.

A second strand of Aviva’s plan involves the establishment of an independent medical panel to check the validity of claimants’ cases. This will draw some sympathy from drivers who have been victims themselves of what the ABI calls the “fraud of choice” for too many people.

The risk of this approach is that another layer of cost and bureaucracy will replace the one that Aviva is looking to remove.

But for any driver struggling to meet the high cost of motoring – not least insurance – these proposals should be discussed. Though one wonders if this is such a good idea why it hasn’t been suggested before?

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Ever wondered how electric vehicle insurance premiums are set? So have we.

Apparently it’s not all that different from how they are set for normal petrol and diesel cars. Thatcham – or the Motor Insurance Repair Research Centre to give it its full title – provides 70% of the data that insurance companies (which also fund the not-for profit organisation) use to score a vehicle’s insurance risk. The main criteria include:

  • Performance (0–60 mph time for petrol cars, and torque for diesel and electric vehicles) and power-to-weight ratio;
  • top speed;
  • repair times;
  • cost of repair;
  • new car price; and
  • vehicle weight.

Added together, these make up the overall ‘insurance group rating’ (IGR), although the final rating may change to take account of specific vehicle characteristics. IGRs are merely guidelines and insurance companies are free to set their own rate for each vehicle. At the end of the process a vehicle will fall into one of 50 insurance groups.

In the case of electric vehicles, account is taken of uncertainties surrounding the battery technology. A small risk factor is applied to take into account difficulties with salvaging the batteries and simply because of the inexperience with the technology.

To give some examples: the Vauxhall Ampera falls into group 21, as does the Nissan LEAF (which initially fell into group 28 because it didn’t have an alarm system).

One interesting issue with electric vehicles is the risk of electrical faults in the home and, in the worst case scenario, your house burning down. This is covered by home insurance, not vehicle insurance. When thinking about insuring their electric vehicle, potential buyers (or indeed current owners) should therefore look at the ‘total cost of insurance’.

In any case: rest insured, people are thinking about the issues.

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The launch of the Motaquote’s Fair Pay Insurance scheme is the latest attempt to more accurately price car policies so that younger drivers are treated as individuals rather than merely a member of a high-risk road-user group tarred with the same brush.

The company’s tie-up with sat-nav provider TomTom will allow members of the most vulnerable group on the road to reduce their insurance premiums by being better and safer drivers. Black-box technology – bought upfront by the driver for £299 – will record several factors related to bad driving behaviour and hence risk: speed, braking, time and location, cornering and types of road. Drive smoothly and carefully, during the least dangerous parts of day and you will benefit from lower premiums. Drive aggressively and dangerously and at night and you will be penalised financially.

Other firms offering similar schemes include Smartbox from Co-op Insurance and Insurethebox. Norwich Union also trialled the idea several years ago.

In principle there should be a big market for these products. According to data from Confused.com, at the end of 2011 the average third party, fire and theft policy for men between 17 and 20 years of age was an eye-watering £3,413. For women it was £1,782.

It is not difficult to understand why the premiums are what they are. Young drivers – especially males – are far and away the most likely to be killed or seriously injured in a road accident. More generally those in the 15-24 category are four times more likely to die in a road traffic accident than from drug, alcohol or other substance abuse poisoning.

Given that schemes like Motaquote’s are voluntary to sign up to, privacy issues are unlikely to be a major problem. Indeed better recording of time, place, speed, etc. offers drivers the chance to prove they are in the right should they be involved in an accident responsibility for which might be disputed. But it does raise questions as who else gets access to the data – other than the insurance company – and when.

According to Motaquote’s Ian Brown:

“The police would have to complete a formal data protection information request form for the prevention and detection of a crime, so it would have to be for a serious incident. In the five years the firm has been running its other telematics-based proposition iKube we have never been asked for data related to a simple speeding offence.”

Anything that brings premiums down for good drivers has to be a good thing. It will also do something to compensate for the European Court of Justice’s ruling that from the end of 2012 gender-based insurance pricing will not be allowed. The big question is: what does all this mean for those young drivers who do not sign up for this type of monitoring? Will they actually see their premiums rise yet further as insurance companies regard them as having something to hide?

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