Do insurance costs make logical sense?

[Edge]

I think I have some idea of the general principle behind insurance. Someone does some maths, called actuary, and calculates the expected payout. A load of people add a little bit of profit to that number, and the customer gets a bill that is slightly larger but determined by that expected payout.

However there are a few features of the car insurance market that do not make obvious sense in this model:

1. The big one that frequently costs me money for seemingly no reason is no claims years. I get that someone who has not claimed is a lower risk than someone who has, but that is aready taken into account by asking about claims. The thing about no claims is that it can only be "use" on one car at a time. I have never claimed from insurance, and I have a car I drive daily that "uses" my no claims, and I have just bought another that I am more likely to use at weekends. If I keep my no claims on my daily drive the cost of a new policy goes up by more than a years policy on my old car, so it would be cheaper to cancel this insurance. Me having another car would massively reduce the chance of a claim on this one (because most of the time I would be driving the other), why does it increase rather than decrease my premium?
2. A related one is protected no claims. Why would next years insurance provided care that I paid a little more to this years provider?
3. The guardian has an article about insurance, and it has a couple of points that make no sense to me. The first is "fully comprehensive insurance, which is now typically cheaper than taking out a third-party policy". This has happened to me, and I have assumed it is just different insurers with different eligibility requirements and actuarial algorithms, but this cannot explain an general trend. A comprehensive policy will always pay out the same or more than a third-party policy, so how could they be typically cheaper?
4. Later in the article it lists the cheapest cars to insure: "the cheapest cars for a 17-year-old to insure were the Fiat 500 Lounge, followed by the Mini Cooper and then the Fiat 500 Abarth 595". The third cheapest car for a first time driver is a 154bhp supermini with a 0-62 time of 7.3 seconds made by Italians. That is most certainly not the third easiest car to drive, or the third safest to be in. I am not sure what the "Cooper" label means on a mini these days but it is not the slowest model is it?

What is going on here? Do these features actually make sense in the actuarial mathematics, in that the price differences above really represent the expected payout of the insurance policy and I am just not understanding how risk works? Is there another logical explanation? Or is it not actually logical at all?

 

[Blobcat]

Some of the more “upmarket” ones have collision avoidance built in - which the more basic ones don’t.

The other one is any claim you have affects all your policies… as you’ve pointed out the no claims is per vehicle.

You can sometimes get ~3years NCB from some companies as you’ve lots of NCB on your daily.

 

[dry run]

Trying to understand the complexities of what is a very complex calculation is probably best left to AI.

Everything impacts on your premium

Your car
Your postcode
Your age
Your job
Your marital status
Your vehicle's security
How many get stolen
Repair costs
Your excess
Your NCD entitlement
Where it's kept
Etc.

You get the idea.

Safe to say that any question you are asked by an insurer (and some you are not), will have an impact on your premium.

 

[ajlsl600]

I think the whole issue of car inss is something of a rip off "because they can". I wud prefer them to sponsor sports events with thier own money not mine, for example.

 

[Rotorhead500]

I get their principle... but in reality it's utter hogsh...!

Hopefully get my new wheels tomorrow, and it's 20% less to insure than the 2015 Disco Sport diesel it's replacing... for a better policy, on a car that has... a bit of a reputation.

No sense at all.

(And I can drive it through Bristol's ULEZ zone free of charge!)

 

[DSK]

All I know is that the insurance industry is corrupt as fvck as it’s a legal requirement to have it so, the honest get get screwed. You cannot ‘justify’ 100% premium increases with a 2 finger salute when no claims are made and perhaps the risks are genuinely lower! Do you think the average worker who is struggling to make ends meat in an average job will get such an uplift on the annual salary/bonus?

All those caught driving without or causing accidents and driving off just laugh!


Sent from my iPhone using Tapatalk

 

[Frontstep]

Predicting the future is unsurprisingly quite difficult.

Thinking you can should probably be a notifiable disorder.

Following patterns is more likely where were at.

I read of a Lady,
her Insurance company of many years wouldn't cover her Honda Jazz because of catalytic convertor thefts.

So took her money when the risk was low but dropped her when the pendulum of life swung in her direction for once.

Remember on renewal they are not your friends and don't give a toss about you.

And please don't give them a nice review because they were easy to give money to.

I am also very nice to people who give me money.
Especially when I have done nothing but suggest I may in the future if you get stuck and even then I might not do anything for you.

 

[peterws1957]

I think I have some idea of the general principle behind insurance. Someone does some maths, called actuary, and calculates the expected payout. A load of people add a little bit of profit to that number, and the customer gets a bill that is slightly larger but determined by that expected payout.

However there are a few features of the car insurance market that do not make obvious sense in this model:

1. The big one that frequently costs me money for seemingly no reason is no claims years. I get that someone who has not claimed is a lower risk than someone who has, but that is aready taken into account by asking about claims. The thing about no claims is that it can only be "use" on one car at a time. I have never claimed from insurance, and I have a car I drive daily that "uses" my no claims, and I have just bought another that I am more likely to use at weekends. If I keep my no claims on my daily drive the cost of a new policy goes up by more than a years policy on my old car, so it would be cheaper to cancel this insurance. Me having another car would massively reduce the chance of a claim on this one (because most of the time I would be driving the other), why does it increase rather than decrease my premium?
2. A related one is protected no claims. Why would next years insurance provided care that I paid a little more to this years provider?
3. The guardian has an article about insurance, and it has a couple of points that make no sense to me. The first is "fully comprehensive insurance, which is now typically cheaper than taking out a third-party policy". This has happened to me, and I have assumed it is just different insurers with different eligibility requirements and actuarial algorithms, but this cannot explain an general trend. A comprehensive policy will always pay out the same or more than a third-party policy, so how could they be typically cheaper?
4. Later in the article it lists the cheapest cars to insure: "the cheapest cars for a 17-year-old to insure were the Fiat 500 Lounge, followed by the Mini Cooper and then the Fiat 500 Abarth 595". The third cheapest car for a first time driver is a 154bhp supermini with a 0-62 time of 7.3 seconds made by Italians. That is most certainly not the third easiest car to drive, or the third safest to be in. I am not sure what the "Cooper" label means on a mini these days but it is not the slowest model is it?

What is going on here? Do these features actually make sense in the actuarial mathematics, in that the price differences above really represent the expected payout of the insurance policy and I am just not understanding how risk works? Is there another logical explanation? Or is it not actually logical at all?

On the subject of having two cars surely the answer is to go to one of those insurers offering a multicar policy where the ncd is mirrored on both cars. Hastings do it amongst others.

TP and TPFT were always a means of getting insurance much cheaper - now it seems to be offered to very high risk customers when comp is not available.

All these problems have arisen due to the massive influx of competition into the market where new providers have their own algorithms and stick to them rigidly. Back eons ago when I first started in insurance there were probably only half a dozen car Insurers providers who used the same rates - simpler and more opaque in their approaches to customers. "Computer says " approach rules just about every industry now and there is no turning back. Even the poor sods in the call centres you speak to will have absolutely no clue as to why the rates are as they are. The only good thing to come out of all this is that insurance premiums for most are way cheaper in real terms than they were decades ago.

 

[Rotorhead500]

The lass I spoke to at Adrian Flux to cancel my current policy sounded positively startled when I said I didn't wish to insure my next car with them as they came back 4 x the price of the one I'd chosen!

I think, like a great many service/call centre based industries, the people you speak with generally have little clue what they're pedalling!

 

[Edge]

On the subject of having two cars surely the answer is to go to one of those insurers offering a multicar policy where the ncd is mirrored on both cars. Hastings do it amongst others.

Practically in the long term this is the answer. The thing is I have insurance on my current car, and cancelling it loses most of the money.

 

[ajlsl600]

On the subject of having two cars surely the answer is to go to one of those insurers offering a multicar policy where the ncd is mirrored on both cars. Hastings do it amongst others.

TP and TPFT were always a means of getting insurance much cheaper - now it seems to be offered to very high risk customers when comp is not available.

All these problems have arisen due to the massive influx of competition into the market where new providers have their own algorithms and stick to them rigidly. Back eons ago when I first started in insurance there were probably only half a dozen car Insurers providers who used the same rates - simpler and more opaque in their approaches to customers. "Computer says " approach rules just about every industry now and there is no turning back. Even the poor sods in the call centres you speak to will have absolutely no clue as to why the rates are as they are. The only good thing to come out of all this is that insurance premiums for most are way cheaper in real terms than they were decades ago.

Not to mention idiots who design make headlights and bumpers and demand over a grand for them!

 

[Edge]

Not to mention idiots who design make headlights and bumpers and demand over a grand for them!

It does seem that bumpers in particular should be designed so that a bump does not cost over a grand. The clue is in the name!

 

[ajlsl600]

A modern car is basically a fabricated revenue stream by design for all involved except the buyer!!!

 

[Norton Insurance Brokers]

We share your concerns over insurance inflation and rising costs across the board. We recently wrote an article on this which may be useful. It details the impact that inflation, shortage of car parts & rising repair costs has had on insurance premiums.

Hope this helps in some way! We can help with any questions if you have them too.

 

[Edge]

We share your concerns over insurance inflation and rising costs across the board. We recently wrote an article on this which may be useful. It details the impact that inflation, shortage of car parts & rising repair costs has had on insurance premiums.

Hope this helps in some way! We can help with any questions if you have them too.

Thanks for your reply. As well as your thoughts on the particular features of the insurance market highlighted in the first post, I would love to hear if you have some information about the top line numbers of insurance provision. How has the ratio between the total insurance premiums and total insurance payouts varied over recent years and different parts of the market?

 

[Norton Insurance Brokers]

Thanks for your reply. As well as your thoughts on the particular features of the insurance market highlighted in the first post, I would love to hear if you have some information about the top line numbers of insurance provision. How has the ratio between the total insurance premiums and total insurance payouts varied over recent years and different parts of the market?

No problem! We generally specialise and are most competitive on classics, specialist or prestige vehicles (as well as multiple vehicles), but generally there are some misconceptions in the general motor insurance market. The more that indicates to the insurer that the driver is low risk, the better. So having a stronger no claims bonus, driving less miles, living in low risk areas, garaging a car etc are all helpful when combined.

We don't have any stats to hand on insurance provision currently sorry, we'll do some digging, but what we do know is that insurers' margins are slim. The key thing to look at if you look at insurers' financial performance is the Combined Operating Ratio. For example, if the ratio is 97%, it means the insurers made a 3% profit of their gross income figure (before broker fees, claims, running costs, I.P.T).

Hope this helps!

 

[DSK]

Practically in the long term this is the answer. The thing is I have insurance on my current car, and cancelling it loses most of the money.

Most offer this and I’ve done it in the past twice only to be screwed after a few years when they hike the price. As a result, I have each car insured individually and kept it that way. Moving around if needed is painless.


Sent from my iPhone using Tapatalk

 

[Edge]

We don't have any stats to hand on insurance provision currently sorry, we'll do some digging, but what we do know is that insurers' margins are slim. The key thing to look at if you look at insurers' financial performance is the Combined Operating Ratio. For example, if the ratio is 97%, it means the insurers made a 3% profit of their gross income figure (before broker fees, claims, running costs, I.P.T).

Hope this helps!

Can you explain this graph from here which seems to break it up?

If the earned premium if £903m and the Claims is £326m what Combined Operating Ratio is that?