The Easiest Car Insurance Trick

How car insurance providers trick you into paying more for your premiums.

This article was previously sent to Fools as part of our 'The Good, The Bad and The Ugly' email series. 

Financial firms spend billions of pounds a year on advertising in order to recruit new customers. However, this can be at the expense of existing customers, who usually get a raw deal.

Take, for example, car insurance. It's almost impossible to watch an advertising break on television without seeing one or more ads for car insurance. Indeed, every single company claims to be able to cut hundreds of pounds from your yearly premium. Can this really be the case?

Having previously worked for insurance firms for more than a decade, I know how sneaky these companies are. Most of the time, they are able to offer attractive quotes to new policyholders purely at the expense of their existing customers. Hence, when it comes to insurance, loyalty hardly ever pays.

Thus, my argument today is simple, yet deadly: in order to provide competitive quotes to new customers, car-insurance providers have to exploit their existing policyholders. Two recent illustrations prove my point:

My wife's car insurance is due next month, so she's about to shop around for quotes. Her current insurer (which specialises in car insurance for careful female drivers) has sent her a renewal notice. Her quote for 2008/09 is nearly £302, which seems a bit steep to me. On checking her records, she discovered that her current premium is £274. Thus, her premium is set to rise by £28, or a tenth (10%).

On checking the handy British Insurance Premium Index produced by The AA, I discovered that, on average, car-insurance premiums have risen by nearly 6% over the past twelve months. Alas, as a `sitting duck' existing customer, my wife's premium increase is almost double the average.

This ruse -- hiking premiums faster for existing policyholders -- is the oldest trick in the insurance book. Indeed, you should get used to being taken for a ride every renewal. For instance, one Fool reader recently emailed me to explain that he found shopping around for insurance terminally dull. Hence, he'd been with the same insurer for twelve years.

After reading one of my articles on car insurance, my Foolish friend decided to put his current quote to the test. He was stunned by what he found: after eleven yearly renewals with the same insurer, his quote was just over twice that of the lowest premium. In fact, he could save £400 every year simply by switching to a rival insurer. Understandably, he was angry with himself -- and with his current insurer for taking him for a ride!

Finally, I leave you with one thought. Have you ever seen a renewal notice which shows last year's premium, as well as this year's? I doubt it. Insurers avoid this, as it would draw unwelcome attention to this year's inflation-busting premium hike!

> Get quality car insurance quotes via The Motley Insurance Service.