I know more or less how insurance works. You spread the risk around a large number of people. If there’s a one in ten chance of a £1000 claim and you have ten customers, you can charge them each £100 for a policy, plus a bit for admin and profit. If you can put separate people out into different boxes you can measure the risks of each box and charge premiums accordingly. Perhaps people who drive red cars are slightly less likely to claim, so you can charge them slightly less and attract more customers with red cars.
It doesn’t matter if it makes sense, as long as the numbers work out over a large number of people. You don’t need to know anything about the specific circumstances of a red car driver to offer him the same discount as all the other red car drivers. The more you know about your customer, the closer his premium will match your actual risk. But presumably there’s a limit to the information that it’s worthwhile to gather, because insurance companies don’t ask for all the information. At some point the cost of doing the admin and the calculations must outweigh the advantage of better knowing the risk. So people get lumped into vague boxes.
But the consequences can still seem mad.
The other day my motorcycle renewal quote came in at nearly £400. It was time to shop around, and I found that GoCompare.com would compare motorcycle insurance quotes. Worth a try. And a huge advantage of this is that you only have to fill in all the details once, on one uniform, fairly well designed web site, instead of having to do it multiple times on lots of different insurance companies’ badly designed sites.
And you can tweak the details and try to optimise the quotes. Is fully comprehensive much more expensive than third party, fire and theft? If I limit myself to 5000 miles does that make it cheaper? Does using the bike to commute make it much more expensive?
I noticed that there was a box to fill in if you stored the bike overnight at another address. I have the option of storing my bike at work in a secure underground car park, so I put in these details and the price plummeted. Great! I picked the best quote which was BikeSure, and handed over the money.
The next day BikeSure emailed me asking me to call them urgently about the details I had provided. It turns out that the underwriter refuses to insure my bike if it is kept more than a certain number of miles from where I live, so they could not offer me insurance after all. I asked how much it would cost to keep my bike at home, but no, they would not insure it to be kept at my home address either because being in London is too risky for them.
So the safe, secure car park is no good because it is too far from my home address which is also no good because it is too risky here.
I get the impression they did not believe that I would really be storing my bike where I said I was. Even the insurance company lady was somewhat incredulous. How can you commute if you store your bike at work? How do you get to work if not on your bike?
The thing is, if the insurance company and the underwriters knew more about me, they’d offer me a far better deal. I hardly use my bike — only in good weather and when the mood takes me. I nearly always commute by train, but quite enjoy the occasional ride home at night, and ride back to work in the morning. The bike really can be kept in the secure, underground car park with the CCTV and the 24 hour security guard.
But to verify all this would be far too expensive. I don’t fit into a neat box that they understand, so I don’t get the deal.