Insurers 'never had it better'

Car insurance has become significantly more profitable, thanks to safer cars, better driving, falling crime and an apparent failure of people to shop around.

Figures from the Insurance Council of New Zealand show a remarkable five-year trend of premiums rising faster than claims , which looks likely to continue for the year to the end of September 2013, though the figures to confirm it are not yet out.

The ratio of claims paid to premiums paid has fallen from 73.68 per cent to 63.52 per cent, leading Neil Pritchard, the head of the Collision Repair Association to say: "Insurance companies in the motor vehicle insurance industry have never had it better."

Pritchard feels strongly about the level of profitability of motor insurance as there is a fifth factor behind the rise in the profitability of motor insurance - pushing down the costs of repairs by insurance companies using their power to put the squeeze on repair shops.

"I'm not sure if the cost of repairs is going down," he said. "But it is not going up at the same rate that premiums are."

That was evident in the collision repair industry which was doing it tough, he said, and he predicted things would only get harder for repair shops who had rising costs to keep up with rapid advances in vehicle technology.

Statistics paint a clear picture of what has been happening.

Motor vehicle premiums, including commercial vehicles, were 18.5 per cent higher in the year to the end of September 2012 than they were in the year to the end of September 2008.

The corresponding rise in the value of claims was 2.15 per cent.

Crime during that period fell. In 2008 there were 63,117 motor vehicle thefts recorded by police. In 2012, there were 49,935, meaning fewer claims to pay.

Crash figures also indicate New Zealanders are becoming safer drivers. In 2008, there were just under 39,200 reported crashes, with around 265 crashes causing injury per 100,000 people in 2008.

In 2012, there were just over 30,300 crashes, with around 211 crashes causing injury - and there were more cars on the road in 2012 than 2008.

Insurance industry figures acknowledge the factors driving the claims ratios down.

Tim Grafton, chief executive of the Insurance Council said: "Cars these days are more sophisticated and well-alarmed, hence more difficult to steal."

Fewer accidents on the roads, again partly due to better cars, but also due to better roading and tighter enforcement, were contributing factors.

Why competition has not dampened premium rises is up for debate.

The market is dominated by relatively few players, with giant Australian companies Vero and IAG holding a powerful position in sales direct to the public, through banks, and also through the intermediated market.

If IAG is allowed by competition authorities on both sides of the Tasman to take over the underwriting business of Lumley, its share of the motor vehicle market will rise further.

And it does seem that too few of us are shopping around to encourage competition between insurers, although because many people buy their insurance as part of a package with their home and contents cover, shopping around can become a complicated affair.

Suzanne Wolton, head of customer relations at AA Insurance, said: "Last time we looked at it, about one in eight people shopped around."

Given that house insurance premiums rises following the Christchurch earthquakes had made total insurance costs for households higher than at any time, she said it was surprising more people were looking for cheaper car insurance.

MANAGING THE COST OF CAR COVER

Car insurance is not compulsory, but it is essential for motorists who do not want to risk either being left motorless themselves, or in debt after a crash. AA Insurance says as well as covering you for damage to your own car, or its theft, vehicle insurance covers policyholders for damage caused to other people's property – their cars, their houses, and commercial premises.

1. Shop around. Don't assume all the premiums you are quoted will be similar. Make comparisons, but take care, there can be differences in cover, for example whether a policy covers a car for an "agreed value" should it be stolen or written off, or only market value. Agreed value is not always more expensive, and provides more certainty.

2. Consider lifting the excess on your cover, but make sure you do not lift it beyond a sum you can afford to "self-insure". Insurers will help you work out the savings you can make this way.

3. Drive carefully, and earn a no-claims discount. Also ensure you get no tickets or prosecutions for driving offences. The bulk of premiums are based on the age and skill of the drivers listed on a policy.

4. Pay annually as this earns discounts.

5. Explore whether having your home, contents and car insurance at one insurer results in an overall lower bill as most offer discounts.

6. Some people opt for third party-only policies which cover for damage to other people and their property, deciding they will accept the risk to their own cars. This is popular with people whose own cars are worth very little.


Source Fairfax NZ News