CAR INSURANCE CLIMATE
In Australia we are presently seeing a substantial reduction in car insurance premiums. Surprisingly, it is occurring at a time when an increase in the amount of claims has led to most major companies now having to increase their premiums to retain their profit margins. So if the major companies are increasing their car insurance costs, then how can consumers be getting a better deal overall?
There are two main factors behind the overall falls in car insurance premiums. Firstly, the market has been flooded with new entrants. The companies entering the market can not win customers by name and reputation since they are not established players. Instead, they are being forced to win over customers with premiums far lower than the big guns. This has led to a small price war, with many companies offering great deals in the car insurance market.
The internet has probably been the main factor behind the price drops, with many of the new insurance market entrants able to offer such low prices by adopting an internet based business model. With the major players having to increase their standard premiums, they have also been forced to introduce internet options. These are cheaper then their standard offerings and have been designed to offer a competitive product to their customers. Overall, the insurance price wars are good news for consumers, who stand to save thousands of dollars in premiums.
By exploring the online offerings through comparison services such as the one here at Zippy, consumers are estimated to save on average at least $200 in premium costs per year. The car insurance market is worth just under $10 billion per year, and with companies constantly modifying their offerings to maintain their share in the competitive market, car insurance comparison services are becoming increasing valuable to the general public.
HOW THE SAVINGS ARE MADE
The online insurance companies are able to offer such great savings generally because of lower overhead costs. Through the elimination or minimisation of many of the standard operating costs, these businesses are able to pass the cost savings onto their customers. It has come about from adopting a different business model to those employed by the major firms, and all indicators point to a successful future for many of the internet based insurance companies.
With an internet based business, there is less of a requirement for staff to man the phones and accept customer’s policies. Although some staff are still employed for claims and other administration duties, the total required workforce is vastly reduced; as are the associated costs for retail outlets, call centres, computers and headsets. Many companies also require the claims to be initiated online, which equates to further cost savings and the elimination of paperwork and postage costs.
A different approach to winning over customers is another reason why the internet based insurance companies are performing so well. The major companies are still using traditional forms of advertising, such as television and print media. While they are effective to a degree, their cost is extremely cumbersome and represents a large portion of the customer’s premium. Internet based insurance companies do not advertise in these mediums and hence do not pass these costs on to their customers. Instead, they concentrate on online methods such as partnering with car insurance comparison websites.
MORE EXPENSIVE, YET BETTER?
The extra overhead costs of the larger insurance companies are not the sole reason that their premiums are more expensive. They generally offer their customers better insurance products with a wider range of handy options. This is something consumers need to consider when looking at the cheaper options online, since a lack of certain options may either prove beneficial if they are not necessary, or potentially be a problem if an accident occurs.
A classic example of an option in question is that a cheaper company will only insure the policy holder as a driver, and exclude cover for any other drivers. If an insured person is positive that they will be the only driver of their vehicle, then the cheaper policy is clearly a better option. But if there is a chance another person may drive their vehicle, such as a drunken night out with friends or when a housemate grabs your keys and takes your vehicle down the shops without asking; then a traditional policy may be a better option.
The cheaper policies rarely include options that consumers normally take for granted. A lack of windscreen replacement cover and free hire cars in the event of an accident are just a couple of options that are unlikely to be included, and the option to retain your No Claim Bonus following an accident is almost certainly not going to be covered. Another new strategy employed by the online brigade of insurance companies is an option for pay as you drive insurance. This is advantageous for people who do not drive their vehicle frequently, since they are only charged on a per km driven basis.
The larger player’s online options will generally provide the same level of cover and options included in their standard policies. The savings are generated by passing the paperwork requirements over to the customer. Instead of hiring staff to man call centres, the customers can take advantage of the price savings by completing their policy applications and any future claims online. Greater savings can be generated by cutting out some of the standard policy features mentioned above, such as the windscreen cover or hire car options.
Whether you choose a budget insurance company or a major market player, you can all thank the internet for driving down your insurance costs. If you haven’t done so yet, it’s time to put the car insurance comparison websites to use and find the cheapest and best insurance deal for your situation.
