Which is the cheapest car insurance company?

We compared prices on a price comparison site for 100 fictitious people, all with different cars, addresses, ages, driving experiences etc. We found that, overall, the cheapest companies were LV= (Liverpool Victoria), More Than and Admiral. That was only part of the story however!

When we looked at the quotes more closely we found patterns developing. For instance, LV= were the cheapest for, mainly, older drivers with excellent driving records. If we looked at those who lived in more dodgy postcodes (in other words, areas with a higher level of car crime, fraud or accidents) they were nowhere to be seen. This indicates that LV= prefers to recruit customers who are less likely to make claims and avoids, or charges larger premiums to, those with a higher risk factor.

When we looked at those who had higher-priced premiums as a result of driving high-powered cars, collecting a poor driving record or other adverse complications, the cheapest ones were Admiral and More Than.

So, if you are a careful, accident and conviction free driver living in a safe postcode, and driving a normal family car, you may be better get going with LV=. If you are a young driver, or normally get charged more than the average for your insurance for any reason, then More Than and Admirall may be a better bet.

HOWEVER: in the majority of cases all these insurers failed to give the cheapest quote to the majority of our panel of motorists. For instance, for our motorists who qualified for the lowest premiums, about one third of them would be better off going to LV=, but about two thirds would have found a cheaper policy elsewhere! This shows the value of shopping around on a price comparison website, rather than going directly to a particular insurer for quotes.

Why is car insurance so expensive?

Firstly, let us understand that the majority of so called insurers are not insurers at all; they are brokers who repackage offers from underwriters and market them under their own names. Companies such as the AA and RAC, Saga, John Lewis etc fall into this category. To make things more complicated some of them also sell their products to other brokers!

This means that when you buy insurance after getting quotes from a price comparison site the broker will take a commission from the premium you pay as well as the owners of the website. The company that actually underwrite the policy and pays out on the claims has to be content with what's left after a fairly substantial portion of it has already being creamed off by the middlemen. This of course is your money!

In addition, advertising for new customers is very expensive. This is why so many companies offer very attractive premiums to people who leave their existing insurer to join them.

How do I benefit from this?

If you are with an existing insurer and you policy is coming up for renewal it is likely that they will sneak in a price increase. You have three choices now; accept the increase, shop around for a lower quote, or challenge your insurer to reduce the premium. Very, very few people take the last option but this is the one which could save you the largest amount of money!

It's easy. Ring up your insurer, tell them that you been offered a much lower quote by a competitor, and ask if they can match it. Very often they will do so, or at least offer you a lower premium, provided that you have been a good customer, have paid up your premiums regularly and have not caused them too much expense!

Should I buy a third party policy?

If you have an old car which is not worth a great deal, and you can afford to replace it if it is written off in an accident, then it may be cheaper for you to get third-party insurance. However; on the other hand it may be more expensive. Why is this?

Many insurance companies are very wary of motorists who ask for third-party only cover. This is quite simply because, in the past, higher levels of claims have come in from drivers who have bought this type of policy, compared to those who have chosen fully comprehensive cover. This means that in many cases quotations for third-party, or third party fire and theft, can actually be more expensive than comprehensive, whilst offering a much lower level of potential benefits! You should start off by getting quotes for comprehensive cover first; then see what the price would be for third-party. You may be in for a shock.

Should I pay monthly or yearly for my car insurance?

If you pay monthly you will be expected to put down a deposit of at least the equivalent of a month's premium and then you will be required to pay the balance off over several months; many insurers will allow up to 11 further months for this. However there are two drawbacks:

1) you will be charged interest. Typically this has averaged about 11 percent in the past but can vary considerably according to the credit rating of the applicant. We have seen interest rates of as much as 33 percent being charged to people who may have been viewed as poor credit risks.
2) some of the cheaper insurers don't accept monthly payments at all, and will only issue policies which are paid for in full in advance. This means that those who want to spread their payments may find that the cheapest insurers simply won't take them on, so they will be forced to buy a more expensive package to start with.

The moral is; if you cannot afford to pay in advance for your policy then beg or borrow the money, rather than go into a pay–monthly scheme.

Should I buy a Telematic (Black Box) policy?

You may well have little or no choice if you are a young driver, or have had very little driving experience. Insurance companies are very fond of this type of policy because:

1) they can quickly spot a bad driver, and either increase premiums or withdraw cover completely
2) the fact that a motorist's driving is being constantly checked has forced many of them to drive in a more careful and considerate manner. This has contributed towards reducing road traffic accidents, and therefore claims against insurance policies.

Whilst there are benefits to drivers having this type of insurance, do bear in mind that if you wish to switch insurers in the future you may have the expense of having a tracking device removed from your car, and another one put in. In addition, if your car is driven (whether or not you are the actual driver at the time) in excess of the prevailing speed limit, cornering acceleration and braking is too harsh, or any of the other conditions of the policy are broken, you could find yourself facing premium increases or even the disaster of having your cover withdrawn. If this occurred you could find it very difficult to get insured at all in the future, let alone with a low-cost policy.

So, if you do opt for a Telematic policy, make sure that you drive carefully and within the rules. Also, make sure you do not lend your car to another driver who may get you into a great deal of trouble with your insurers!