Are we making car insurance too difficult?

Do you have the best car insurance for your specific needs? How do you know? The best answer would be to confirm that you compared various product providers and their car insurance offerings and that, after careful scrutiny, you believe you have made the correct decision.

Every half decent financial adviser would emphasize the importance of comparison – not only price comparison – but also product comparison. But how easy is it to compare insurance offerings? In this post I would like to argue that it is getting more and more difficult and even venture to ask the question “Are we not making it too difficult?”

The basics of car insurance comparison

On the Car Insurance Blog we have discussed this in a post titled “How do I compare car insurance quotes?” I would like to quote a small but very important section from this post:

“Financial writers often refer to the need of comparing apples with apples. You can only compare insurance products from different providers if they offer the same benefits. If the benefits differ or there are “extras”, you will need to strip those extras from the policies and compare the benefits which are similar. Insurance aggregators tend to simplify this process as a specific quote form will allow the client to specify a few simple needs/ requirements and the participating insurers will offer a quote based only on those identified benefits.”

I believe that recent new products are making this comparison even more difficult and would like to explain this through an example.

“Insurance sweeteners” and “That’s not all” car insurance offerings

The competitive insurance environment have removed the ability to make “like for like” comparisons. Insurance companies have been forced to be innovative in product design and this has lead to many extras, sweeteners and “that’s not all” offerings.

We can no longer merely compare apples with apples. The baskets of apples are not similar – some have packets of nuts on the side and the others have chocolates or a few plums included within the wrapping!

In the past the insurance client would in most instances only have to compare prices and excesses payable.

Now the client has to place a value on many other benefits such as:

–          A no claim bonus

–          Various rewards

–          Free Roadside emergency assistance

–          A fixed car insurance premium for a specific period.

With the entry of Discovery Insure and their Vitality Drive product they are turning over the whole apple cart. How does the average vehicle owner place a value on the benefits from loyalty points and programs? What value would be placed on access to free vehicle inspections, money back on petrol from a specific provider etc? How much would you be willing to pay for this as a part of your car insurance?

Insurance Aggregators and Product Innovation

I believe that Insurance Aggregators will struggle in this highly competitive environment. For Insurance Aggregators to add the value they are designed for, they need to be able to compare apples with apples.

They work best in an environment of simplicity where the Insurers taking part in the quote comparison process have basic offerings without the thrills and add-on’s. Their task will be further complicated with the sharp increase in insurance products developed around insurance telematics solutions.

Advice to the car insurance consumer

We would like to provide a few suggestions on how the consumer can avoid all the clutter:

–          The consumer needs to be aware that there are many different products and that they differ in more than just price.

–          The consumer should approach any comparison with caution and take some time to compare offerings.

–          Do your homework to gain an understanding of the true value of additional benefits.

–          Only through some research and investigation will you be able to make an “informed” decision.

–          Use the internet and ask around to gain the necessary confirmations – chat to happy and disgruntled customers to find the correct questions you will need to ask!

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