New regulation on car insurance (good news?)
- Thread starter BUDFORCE
- Start date
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So what do you think will happen and why?
No doubt insurance companies will want to maximise profits in anyway they can. Like all/most other business models it’s about making as much money as possible in any way they can.
I don’t know what will happen anymore than you do. I don’t know how much they rely on the extra money earned from the small percentage of customers who accept their over inflated renewel quotes.
I do know I hate to see people taken advantage of in the name of profit and greed. It baffles me that peoples only concern is how it might affect them, how potentially paying a little bit more is somehow such a big disaster and would rather others be profiteered from, rather than insurance companies held to a better standard.
It's basic economics though isn't it. In effect, the good deals for new customers were funded by the higher prices paid by existing customers. Leaving aside the moral arguments here, once this is legally not possible then new customer prices will have to rise - they are there as a hook, the profit on the first year policy is less important as a result. Once you have to charge the same irrespective of new or existing customer it will be unviable to offer the prices currently offered by many insurers to attract new business.
I don't accept that it's unknown what will happen. I'd counter its obvious, infact I see no other rational outcome. Do you?
It’s only one way of looking at it though isn’t it?
Another option and arguably the most sensible would be that if I am with Adrian Flux for example, they now assume that I will be with Adrian Flux indefinitely. So all other insurance companies have 2 options. They either decide they don’t want my money, or they start competing for my business because after all they’ll get nothing from nothing but something from something.
It's all about risk. 17 year olds are both young and by definition have very limited driving experience and zero no claims. It's not the value of their car that insurers are worried about. They are worried about the likelihood of that person having an accident and them having to deal with 3rd party claims and injury claims.
It's the people who shop around that will be impacted the most, because you won't get so many bargain new business deals offered to you.
It doesn't necessarily work like that though. In insurance, "something from something" can be worse than "nothing from nothing" if the the rates are too low. It's why insurers sometimes actively pull out of certain markets.
But the overall level at which they set that premium will be restricted by the lack of additional profit from the higher priced renewal policies. This seems to be the point you miss over and over again. Insurance companies do not have a particularly high margin as it is. Where does the money come from to continue to offer the sort of price you can currently get as a new customer?
Lets imagine the cost to an insurer of offering a Policy to Person A is £200 a year. At £200 a year, they will have 0% margin as it merely covers the costs of offering the policy.
If currently, as a new customer they offer a premium of £210 and as an existing customer a renewal of £300, why do you think suddenly the policy will be £210 for both new and existing? How does that work?
Is it not more likely that the price settles at, say, £250 - meaning people who don't shop around get a reduction in insurance costs and people who do get an increase. Which is exactly what people have been saying.
Lets imagine the cost to an insurer of offering a Policy to Person A is £200 a year. At £200 a year, they will have 0% margin as it merely covers the costs of offering the policy.
If currently, as a new customer they offer a premium of £210 and as an existing customer a renewal of £300, why do you think suddenly the policy will be £210 for both new and existing? How does that work?
Is it not more likely that the price settles at, say, £250 - meaning people who don't shop around get a reduction in insurance costs and people who do get an increase. Which is exactly what people have been saying.
Their becomes a point when you are already getting the best deals. I stuck with my insurance company for many years because ultimately they would match pretty much match the cheapest, year on year. I would rather stay with a reputable company who have been good to deal with than switch to compare the markets cheapest because I can save £10 at best.
So how much are they relying on from over inflated insurance profits?
Most people don’t haggle, shop around or switch regularly so probably quite a lot.
You see stories all the time that people like Martin Lewis puts out like ‘I saved £LOL on my renewal quote’ the only reason they saved £LOL is because they’ve been overpaying for a decade and just took the renewal offer each time.
You see stories all the time that people like Martin Lewis puts out like ‘I saved £LOL on my renewal quote’ the only reason they saved £LOL is because they’ve been overpaying for a decade and just took the renewal offer each time.
I've been with Hastings for several years, every year without fail they offer a renewal quote markedly more expensive than my previous year was. Every year I shop around, go on the price comparison sites, and Hastings are the cheapest for me. It's a waste of my time when they could and should offer me that price to start with. I don't mind shopping around for the best deal and I regularly do whenever I purchase almost anything, but if the best deal is the company or provider I'm already with that should be available to me from the outset. Energy firms are just as bad by offering tariffs only to price comparison websites that aren't offered to existing customers.
It'd be like Tesco offering cheaper prices to those without a Clubcard than those with one.
It'd be like Tesco offering cheaper prices to those without a Clubcard than those with one.
UK Motor is an ultra-competitive insurance market, the ratios run very high (high volume, low margin). It may surprise people to learn that often insurance company profits do not come from insurance at all. Essentially insurance is just a capital generation scheme that gives them funds to invest, which is where they make their profits. Take in ~£1bn of premium, pay out ~£1bn in claims, but due to the time lag between collecting premiums and paying out claims, they have cash they can leverage via investments.
The point here is that moving forward the best deal may no longer be with your present insurer, or at least not at the same low price, because they won't be offering these discounted prices for 'new' customers. These cheap Hastings deals may dry up as a result of this legislation.
I get that, and will wait and see what the actual outcome of it is. There'll presumably still be some competitiveness involved between companies though, just as there is now.
Ok so they make a decent chunk of change from those not shopping around. So how many more people now shop around, that didn’t before the rise of search comparison sites and websites like Martin Lewis?
Its fair to say that the 17 million in 2020 would’ve been far, far higher in the early 2000’s. So the whole insurance industry has weathered that considerable loos of income just fine.
Now I have an idea. It’s common knowledge nowadays that the cost of an insurance repair is far higher that the cost to repair privately. How much could insurance companies save if they put some effort into reducing the cost of repairs, in-line with what it would cost a normal person repairing a car privately.
Job done no need to rip people off. No need to inflate prices just do what the government repeatedly fail to do. Reduce waste.
Its fair to say that the 17 million in 2020 would’ve been far, far higher in the early 2000’s. So the whole insurance industry has weathered that considerable loos of income just fine.
Now I have an idea. It’s common knowledge nowadays that the cost of an insurance repair is far higher that the cost to repair privately. How much could insurance companies save if they put some effort into reducing the cost of repairs, in-line with what it would cost a normal person repairing a car privately.
Job done no need to rip people off. No need to inflate prices just do what the government repeatedly fail to do. Reduce waste.
Is it?
Insurance company negotiated labour rates at many body shops are much lower than those you'll pay as a private customer.
So why would the overall cost be higher?
It generally isn't for a like for like repair.
Get a quote with the same body centre and usually it will be higher than your insurer would pay. Insurance companies have negotiated rates as you'd expect for a firm that essentially bulk buys a product.
Car hire and not like for like repair.
For example if you had undercarriage damage and some of it was only cosmetic to the underside of the car and it didn’t impact the function or safety of the car a private customer probably wouldn’t bother repairing it, an insurance company absolutely would.
Insurance put the car back to as before the accident, private customers often don’t and will cut corners to do things themselves to save cost.
For example if you had undercarriage damage and some of it was only cosmetic to the underside of the car and it didn’t impact the function or safety of the car a private customer probably wouldn’t bother repairing it, an insurance company absolutely would.
Insurance put the car back to as before the accident, private customers often don’t and will cut corners to do things themselves to save cost.