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JustYield

Car Insurance

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We buy car insurance to protect us from the costs of unforeseen accidents, to pool risks and because we have to, by law.

However, as soon as you make a claim / have a claim made against you / are on notice of a potential claim against you (whether actually filed or not), your premium the following year will increase (over and above the embedded annual creep upwards in premiums across the board).

Now I know this is accepted industry practice and we've all got used to it, but is it right? Is it ethical?

If you have already paid for the cover for the period in question (when the accident occurred) why do you then have to pay more the following year, or have a special reserve in place for pending claims when you renew? Haven't you already paid in full, why do you have to pay again?

So my question boils down to "does car insurance do what it says on the tin?"

I guess I'm confused about whether my expectations of insurance companies is wrong, or if, over time, insurance companies have forgotten what they are for.

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We buy car insurance to protect us from the costs of unforeseen accidents, to pool risks and because we have to, by law.

However, as soon as you make a claim / have a claim made against you / are on notice of a potential claim against you (whether actually filed or not), your premium the following year will increase (over and above the embedded annual creep upwards in premiums across the board).

Now I know this is accepted industry practice and we've all got used to it, but is it right? Is it ethical?

If you have already paid for the cover for the period in question (when the accident occurred) why do you then have to pay more the following year, or have a special reserve in place for pending claims when you renew? Haven't you already paid in full, why do you have to pay again?

So my question boils down to "does car insurance do what it says on the tin?"

I guess I'm confused about whether my expectations of insurance companies is wrong, or if, over time, insurance companies have forgotten what they are for.

Their argument would be that by having an accident you have provided them with information about your risk profile, similar to that provided by the type of car you drive, age, sex etc. - someone who has had one accident is more likely to have another than someone who hasn't had one. Therefore, they reason, you should be charged more.

Personally, I think the profiling has been allowed to go too far, in particular the age related insurance rates. Since most people experience every age from 18 to 70, it would seem fair to me if the excess incurred by younger drivers was spread out over their life time. This of course would require legislation that prevented complete actuarial loading of the risk on those who bear it at a given instant in time. (Otherwise a company could undercut by only selling to older drivers etc.)

The way private medical insurance is handled in Australia is reasonable from this perspective. There is a fee you pay which is age dependent, and provided you have insurance from the age of 30 and do not leave cover for more than a total of 18 months afterwards there is no age related loading. If you chose not to take out insurance until some later age you have to pay an extra 2% on your premium for each year above the age of 30 for the next ten years of cover, at which point you revert to the standard charge. So, someone who decided to wait until 60 before taking out health insurance would pay an extra 60% each year over the next 10 years (i.e. a total of 6 years extra premiums) There are also tax incentives that push high earners towards taking out private medical insurance.

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Their argument would be that by having an accident you have provided them with information about your risk profile, similar to that provided by the type of car you drive, age, sex etc. - someone who has had one accident is more likely to have another than someone who hasn't had one. Therefore, they reason, you should be charged more.

Sure, I know that would be their argument. Is there any evidence for it or do they merely use it as a (on the face of it, reasonable) excuse to load extra premiums on someone who had an accident?

If I had an accident I know I would be more likely to learn from it and drive more carefully in future. Sometimes accidents are just that - accidental. Haven't you already purchased cover for that? Isn't pooling meant to smooth over any individual's misfortune?

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Sure, I know that would be their argument. Is there any evidence for it or do they merely use it as a (on the face of it, reasonable) excuse to load extra premiums on someone who had an accident?

If I had an accident I know I would be more likely to learn from it and drive more carefully in future. Sometimes accidents are just that - accidental. Haven't you already purchased cover for that? Isn't pooling meant to smooth over any individual's misfortune?

I think it's quite reasonable to risk manage and charge people in accordance with their level of risk.

The idea of spreading costs across the lifetime of the insurer is a good one, but difficult to do in our fragmented and completive insurance market.

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Sure, I know that would be their argument. Is there any evidence for it or do they merely use it as a (on the face of it, reasonable) excuse to load extra premiums on someone who had an accident?

If I had an accident I know I would be more likely to learn from it and drive more carefully in future. Sometimes accidents are just that - accidental. Haven't you already purchased cover for that? Isn't pooling meant to smooth over any individual's misfortune?

I understand that if you have had an accident it does increase your risks of having another accident quite substantially. However an analogous scenario is that if you are burgled you are more likely to be burgled a second time, and yet when I was burgled a few years ago my house insurance rate was unchanged.

BTW it is not a legal requirement to be insured - there is an alternative of placing sufficient funds in bond with (I think) the home office. I believe it's about 50k though.

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I think it's quite reasonable to risk manage and charge people in accordance with their level of risk.

The idea of spreading costs across the lifetime of the insurer is a good one, but difficult to do in our fragmented and completive insurance market.

Yes, the lifetime premium spreading is pretty impossible in the car insurance market in the UK as it stands. It could never be "voluntary." For medical insurance in Australia, it was legislated - to prevent the insurers jacking premiums up when you got sick/old. I'm sure they could probably do something similar with respect to car insurance if they really wanted to.

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I understand that if you have had an accident it does increase your risks of having another accident quite substantially. However an analogous scenario is that if you are burgled you are more likely to be burgled a second time, and yet when I was burgled a few years ago my house insurance rate was unchanged.

BTW it is not a legal requirement to be insured - there is an alternative of placing sufficient funds in bond with (I think) the home office. I believe it's about 50k though.

Iirc, it was £500k(!), but I have a vague recollection of reading somewhere that they made the conditions even more onerous in the past couple of years or removed the possibility.

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OK, I'll accept that if someone has an accident their risk profile can be refined and their premium increased and I'll accept that there is a strong actuarial basis for this. But the pool doesn't get a corresponding reduction, does it? It's double dipping by the insurance company plain and simple. They do not apparently pass on the benefits of pooling (one of their raison d'etres) but instead ratchet as many policy holders upwards as they can from a base level which already compensated them for the pool risk.

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It is unfair that those who are random victims of accidents or theft have to pay out for it.

It got the point I wrote to them to make sure they were not making a mistake as others wanted £1600

for TPFT or somehow I was getting a 3 month quote by mistake.

Either they have a fault on their system or insurers really do understand risk because so far it;s been zero claims

and a very cheap comprehensive insurance which makes me bias towards thinking there is a reason some people

pay more.

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Whilst I agree with the sentiment, let's no forget we're talking about here. It's not a case of your premiums being increased, but the no-claims discount being decreased.

I know that's splitting hairs, and that the net effect is the same, but I feel it's a valid point.

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Whilst I agree with the sentiment, let's no forget we're talking about here. It's not a case of your premiums being increased, but the no-claims discount being decreased.

I know that's splitting hairs, and that the net effect is the same, but I feel it's a valid point.

No, my understanding is that if you have "protected no claims" your no claims percentage is not affected BUT your base premium may be. Evil isn't it?! :angry: If your no claims isn't protected then you get hit twice.

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IMO it's fundamentally unethical. Someone who's had lots of accidents is almost certainly a higher risk than normal, so that is valid person-specific information. On the other hand I think that it's very unlikely that there's any statistical significance in a single accident (unless supported by other evidence, e.g. a careless driving charge), and therefore upping the premium is just doing so because they can get away with it. Theft is even worse - the price of the premium takes into account the risk of theft in the first place, so there's no excuse for being charged more next time if your car does get stolen, again as long as there isn't any evidence to show you've increased the risk (e.g. by never locking the car).

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  • 152 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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