Car insurance another cost to bear

RICHARD MEADOWS

Car ownership is a fantastic way to burn through cash. A friend learnt this cheerful lesson just last week. She was aghast at an insurance quote in which the annual premiums were half the price of her new car.

As a young and inexperienced driver, she was discriminated against - and for good reason.

The business model of insurance companies revolves around calculating the risk profile of customers based on generalisations about their demographic profile.

But if you know which factors car insurers use to generate risk profiles, you can use that knowledge to influence it in your favour.

Naturally, they're quite cagey about revealing ''commercially sensitive'' info about the weighting given to various factors. But with the advice of a couple of insurers and some industry insiders, we can set some general rules to slash insurance payments or at least explain why the bill is what it is.

Don't be young, or male

Though gender reassignment surgery has come a long way, some things are still beyond our control. And sadly, age and gender make up two of the most crucial components of your risk profile.

That's bad news for those of us with a pesky Y chromosome and a wrinkle-free face.

An 18 year old manchild, for example, will usually pay at least three times the premiums of a lady in her 60s.

Punched into one insurer's quote calculator using identical details, the pensioner pays $585 for full cover each year, while the teenager forks out a whopping $1779. In fact, the young fella gets stung twice, copping an extra $500 on his excess for being under 21.

But it's not fair - what if the teen is a stickler for safety, and granny is a maniac on four wheels?

The Human Rights Commission explains insurers have a special exemption to discriminate on the basis of age and gender, as long as it's based on statistical or actuarial data.

And when you take a look at the crash stats, that seems fair enough:

According to Ministry of Transport statistics, 83 per cent of  ''high-risk'' drivers are male. Between 2005 and 2009, male drivers aged 15-19 were 12 times more likely to crash than 55-59 year old men. And young female drivers had a lower crash risk than men of the same age.

Any males with their noses out of joint can move to Europe. A controversial ruling by the European Court of Justice determined that insurers won't be allowed to charge men higher premiums as of the end of this year.

Will New Zealand follow suit? The Human Rights Commission wouldn't comment, but don't hold your breath.

Don't be a city slicker

''If you insure in Auckland, you could be paying twice as much as in a rural setting,'' says AA Insurance head of operations Martin Fox.

That's mostly because traffic accidents are directly related to the density of vehicles on the road, he says. The other factor is theft, and surprisingly, 'safe' and affluent suburbs aren't always cheaper.

Using the quote calculator, Ponsonby hipsters are charged $1479 for full insurance, while the denizens of Mangere Bridge pay $1232.

''You'll find that the thieves go to where there are lots of vehicles,'' says Fox.

Don't crash your car

Easier said then done. However, insurers do tend to reward people for good driving behaviour, says Insurance Council spokesman Brett Solvander.

No-claims bonuses can reduce your risk profile massively, slashing as much as 60 per cent off your bill after five years accident-free.

Solvander suggests looking for a bonus that is guaranteed for life, so your premiums don't rise again after an unlucky prang.

If your no-claims bonus isn't guaranteed, then do your utmost to maintain it, including not claiming for smaller stuff.

Because the majority of claims are for glass, Consumer New Zealand deputy chief executive David Naulls reckons it's important to have automatic windscreen or glass cover in the policy. That way, you can get minor repairs fixed without putting your driving record at risk.

Don't pimp your ride

Strangely enough, insurers don't seem keen on insuring boy racers.

''If you are going to go out there and put in some sporty-racing type modifications, be prepared for the insurance company to be concerned about that,'' says Fox.

At State Insurance, modifications are categorised by performance, comfort or appearance, and then considered in the context of other risk factors.

''A person under 25 years driving a car modified with performance enhancements who has a string of speeding convictions is likely to be a driver who pushes limits,'' a spokesperson says.

Fox reckons there's an old industry saying: ''Anything is insurable.'' It's just a question of price.

There are specialist brokers who deal in high-risk, high-performance insurance. But given the prohibitive cost, most of the hordes of boy racers are probably hooning around with no cover at all.

Do get fully licensed

If you want to slash your premiums in half, then it's time to book some driving lessons and brush up on your parallel parking skills. Someone who's held a restricted license for two years pays a smidgen under double the premiums of a fully licensed driver.

And if your L-plates are still velcroed to the windscreen, you'll pay another half again - that's if the company decides to insure you at all.

Do beef up security

You can knock another 10-15 per cent off premiums, without having to hire armed guards and install bulletproof glass.

The simple act of taking your car off the street and garaging it takes about 7 per cent off the premium. Then the installation of a decent alarm system can take it down a further 5 per cent. Not all insurers will ask about this, so pipe up and ask for a discount if you're using one.

Do drive a modest car

''It's remarkable with car insurance - the value of the car is really not a significant rating factor,'' says Fox.

He explains that with the exception of thefts and total write-offs, a flash car usually costs the same to repair as any old banger.

It's really the performance and sheer grunt of the car that matters- a humble 1.3 litre Toyota Corolla is going to be a lot gentler on the wallet than a Holden V8.

''Higher powered cars are also more likely to get a driver into an accident situation than a lower powered car,'' says the State spokesperson. ''Combine a high powered car with low experience, and the risk is even greater.''

MORE INSURANCE SAVING TIPS

Once your risk profile drops as low as it can go, you should become an attractive proposition to insurers. But it doesn't stop there ...

Shop around

Sniffing out the lowest price is a particularly good idea for younger applicants, says Naulls.

''A young woman under 25 could save $700 bucks a year depending on which insurer she went to.''

The price differences for the other demographics in the latest Consumer NZ report aren't quite so dramatic, but the gaps are still several hundred dollars a year.

Naulls recommends getting at least three quotes, and of course, ''it's always possible to bargain a bit''.

If you feel some loyalty to your existing insurer than let them know what their competitors have offered - chances are they'll be keen to retain you.

Increase your excess

Everyone has a different risk tolerance. For dare-devils who want to shoulder a bit more themselves, many insurers let you bump up the excess and reduce premiums in turn.

Taken to the extreme, pushing up your excess by $1000-$2000 can halve premiums. Obviously this will be more-cost efficient for those on higher premiums.

''Because they're percentage discount based, then you will find that if you've got a low premium then the relative benefit is perhaps smaller,'' Fox says.

Package deals

If you place all your insurance policies - car, home, contents - with one provider, they may offer discounts to the tune of 20 per cent or so.

But Fox is wary of simply seeking a package deals because sometimes the same prices can be had via companies that don't offer them. It usually pays though to pay everything with one company.

''At the end of the day, it's how much does the consumer have to pay?''

Fox says the fail safe way is to add up the premiums, and see which combination is cheapest.

Don't overinsure

Again, your risk tolerance will determine which of the three sorts of car insurance to get.

The risk averse will go for full insurance. But once a car gets over a certain age, the amount you pay in premiums becomes disproportionate to the value of the car.

''What we find is that as a rule of thumb, vehicles under about $5000 tend to be ensured for third party, or third party fire and theft,'' says Fox.

Keep an eye on the value of your car as it depreciates, and be ready to drop back to a cheaper policy.

Pay a lump sum 

Insurance companies will allow you to stagger payments monthly or fortnightly if you can't afford the yearly lump sum. But you typically pay a whole 10 per cent more for the privilege of paying in instalments.

Fox points out that the fee covers the cost borne by the insurer for GST and levies, but that doesn't change the fact that the consumer is still paying more. If you can budget to pay the premiums in an annual lump sum, then do so.

Null and void

Driving a car which is unfit to be on the road voids your insurance. Driving after 10pm on a restricted license voids your insurance. Driving while drunk or disqualified voids your insurance.

You're going to feel pretty silly if you T-bone a late-model Audi and can't get cover because your rear left tyre was bald.

Telling fibs

During research for this article, several consumers suggested creating policies under parents' names, in different suburbs or variations thereof to get cheaper rates.

''They'll never find out ... '' they said breezily.

Yes, they will, says the Insurance Council's Brett Solvander. Apparently 'They' have ways of finding things out. Spooky.

''Do not under any circumstances provide dishonest information,'' he says. ''It will void your contract - there's no question about it.''

People trying to play the system don't go un-noticed for long.

''We have this delightful thing called the insurance claims register.''

That register tracks everyone who makes a claim, and allows insurers to spot fraudulent patterns. It's not worth jeopardising your future insurance prospects by trying to outfox the insurers.

- © Fairfax NZ News