Insurance Puzzle

headpin

Just renewed my car insurance. Only change from last year was my wife currently has no car so informed now only one car household.

Premium rises by £40’ish. Asked why the increase and what the extra risk may be. Told was likely that would use this car more. When informed I had not increased the estimated annual mileage it then went as to the underwriters do not divulge their reasons. The agent seemed somewhat embarrassed as could not think of any logical reason why the risk may have increased. And neither can I.

I know this is insurance, but. Can anyone come up with a logical explanation, except legal extortion, as to why the risk may have increased and an additional sum to cover it is warranted?

greyteam1959

Might be nothing to do with risk ??
Just the insurance company wanting to make more profit.

Car_54

inflation?

Sandtree

The true answer is because statistical analysis shows those stating they have access to another vehicle have a slightly better claims experience. Mass market consumer products are priced on stats not logic. If you want to try and rationalise it then where you have access to another vehicle you are normally doing more miles than you have declared on this policy and so have more experience without them being on risk for those extra miles and hence a slightly lower premium.

If you wanted to be cynical you could even guess at them wanting to be on the good side with customer with multiple vehicles in the hope they get to insure those too.


Agents in contact centres don't get told why the premiums are what they are, they simply plug the values in and it gives them an answer. Unfortunately customers tend to insist to be told why and some agents will try to guess at the reason to placate the customer.

headpin

Car_54 said:

inflation?

No, I had the renewal premium for a two car household and reducing to one car increased premium. So, plain extortion, IMO, but happy to hear a reasonable explanation, if there is one.

KimJongUn88

It’s not extortion.

Aretnap

It's a rather ineffective form of extortion given that if you don't like the price you can just take your business to any of a couple of dozen other insurance companies.

It's also a pretty silly way of making money given that the insurer can set its premiums how it likes and doesn't need to give a reason. So if they think they need to make more money they would be better off raising everybody's renewal premium by a couple of pounds and hoping that they don't notice, rather than raising a random handful of people's by £40 for a spurious made up reason and then watching those people go elsewhere rather than pay the extra £40.

So we may assume that there is an underwriting or commercial reason, rather than the insurer just picking on you personally, even if we're not clever enough to understand the reason ourselves.

As Sandtree says the person who answers the phone certainly won't know the reason, and even the underwriters might not be sure of it - if the data shows that one car households make more claims than drivers in two car households, then insurers will charge more, even if they're not sure of the reason why that's the case.

But as a guess, the likelihood that the car will now be doing more miles doesn't seem like a bad one. Presumably your wife will now be doing journeys in your car that she'd otherwise have done in her own car, which obviously means a good chance that the overall mileage will be higher. The fact that you haven't declared a higher mileage is really neither here nor there. Most people have only a vague idea of how many miles they're going to do next year, even more so if their circumstances have just changed significantly. And contrary to popular belief your insurance is not going to be invalidated if you go over your estimated mileage unless it's by an enormous amount, so your insurer will still be on the hook for the extra mileage your wife is (probably) doing.

The flip side to that is that your wife might be doing very little driving now, which means that the mileage will not increase much, but the car will now be driven by someone who does very little driving. That brings its own risks - people who do very little driving are often nervous, inexperienced drivers, which is why it is often more expensive to insure a car for 2000 miles pa than 8000 miles pa. Questions like "do you have the use of another car" are mostly aimed at sorting out drivers who do a lot of driving from people who don't do very much.

jimjames

headpin said:

I know this is insurance, but. Can anyone come up with a logical explanation, except legal extortion, as to why the risk may have increased and an additional sum to cover it is warranted?

Mileage might be the same but still get more use. Our cars have same annual mileage stated but neither get reached, with only one car it would be more likely to be reached. With 2 cars and 2 drivers it makes logical sense that each car will get more even use than moving to 1 car and 2 drivers. That might not be reality but insurance is based on overall risk experiences.

Belenus

headpin said:

Just renewed my car insurance. 

Did you shop around and get other quotes?

headpin

jimjames said:

headpin said:

I know this is insurance, but. Can anyone come up with a logical explanation, except legal extortion, as to why the risk may have increased and an additional sum to cover it is warranted?

Mileage might be the same but still get more use. Our cars have same annual mileage stated but neither get reached, with only one car it would be more likely to be reached. With 2 cars and 2 drivers it makes logical sense that each car will get more even use than moving to 1 car and 2 drivers. That might not be reality but insurance is based on overall risk experiences.

What’s the point in declaring information is correct then if they just make their own assumptions regarding how much use. In fact their will be no more use than before. But hey ho insurers can do what they like because you need insurance and have no right to challenge their basis. 

Yes, you can shop around but then with no transparency it’s all still playing without knowing the rules they play by! I can afford the £40 many times over, but there are plenty who cannot and who would find this difficult while lining the pockets of those who already make too much. We should be thinking about those rather than trying to justify baseless charges

Sandtree

headpin said:

jimjames said:

headpin said:

I know this is insurance, but. Can anyone come up with a logical explanation, except legal extortion, as to why the risk may have increased and an additional sum to cover it is warranted?

Mileage might be the same but still get more use. Our cars have same annual mileage stated but neither get reached, with only one car it would be more likely to be reached. With 2 cars and 2 drivers it makes logical sense that each car will get more even use than moving to 1 car and 2 drivers. That might not be reality but insurance is based on overall risk experiences.

What’s the point in declaring information is correct then if they just make their own assumptions regarding how much use. In fact their will be no more use than before. But hey ho insurers can do what they like because you need insurance and have no right to challenge their basis. 

Yes, you can shop around but then with no transparency it’s all still playing without knowing the rules they play by! I can afford the £40 many times over, but there are plenty who cannot and who would find this difficult while lining the pockets of those who already make too much. We should be thinking about those rather than trying to justify baseless charges

Guess you ignored my post?

What transparency do you think there are in other products pricing? When you compare a Uniqlo Cashmere jumper for £80 to a Prada Cashmere jumper for £800 how much of that difference is due to better quality materials? More materials? Marketing? Is it that the shop is making more or the manufacturer?

I'll repeat, mass market insurance has a technical/risk premium calculated by statistical analysis of their experience. If technical premiums increase by 10% for going from a multi-car household to a single car household it simply means that the claims experience (frequency x cost) is 10% higher.

You can have a hypothesise as to why that may be if you want, I personally don't buy JimJames' suggestion and prefer mine, that with more than one car you are doing more miles in total but they are only covering you for the miles on this car so you are more experienced and they are no more exposed... however ultimately anyone is guessing