Insurance 101 for Car People

Insurance: A grudge purchase that could change your life

Perhaps the most disinteresting subject you will ever read here. The contents herein include snippets that I’ve shared on many occasions with friends, colleagues, strangers and potential customers in the past.

My name is Kalen and I’m a recovering insurance industry worker. For my sins, I’ve done well over 20 years in the industry. I’ve worked on products, run service centres, call centres and even been involved in starting and running an insurance agency marketing specialist motor insurance for modified vehicles.

So why should you care about car insurance? Well, your car, regardless of what it is, is usually your second biggest asset. Often encumbered, sometimes not; it can be the way you get the kids to school, get off the beaten path to explore the country and throw up a swag, or it could be your early morning Sunday driver that you’ve had for ages. The lucky few will have multiples with utility across each of these potential usages and more.

The level of care and passion for each vehicle will vary. Some won’t really be bothered by what happens to the car, and I will say from now that this article probably isn’t for you. Find an aggregator online, take the cheapest policy and hope for the best. But if you care about your vehicle at all, and I believe you should, here’s some things to consider

Why do you buy insurance anyway?

It’s worth unpacking this, because it does get lost at times. Ultimately, you’re buying protection against loss that comes with either an incident, or theft. The loss is either damage to your vehicle or some else’s vehicle or property, the latter where you are deemed to have caused the incident.

So, what are the things to consider?

These are the things that I’ve always considered and advised people to think through, in order of priority.

The Insured Value

You’re insuring an asset, and the asset is worth something. Ultimately the value or “sum insured” is what you receive if the car gets stolen or “written off” when it cannot be repaired. It also factors into repairs, because once the cost to repair the vehicle reaches a certain proportion of the sum insured it will be declared a total loss.

Theres are two options to consider, a Market or Agreed Value.

Market Value

This is a vehicle value that is determined by market valuation guides such as Glasses Guide or Redbook. They take in vehicle sales data from various sources and ultimately represent an average.

This is the preferred valuation position for the insurer because they can take in a valuation only at the time a vehicle might be deemed a total loss. As a result, your premium will usually be a little cheaper under this option.

The flipside is that you are at the mercy of the valuation guides, and the assessor in question, when it comes to determination of your vehicle value.

Agreed Value

As the name suggests, this is where the value of your vehicle is agreed at the beginning of your insurance term, guaranteeing a payout amount should the worst happen.

The process differs amongst insurers. Sometimes it will deploy anaverage market valuation provided by the guides mentioned above. The same guides also provide an upper and lower limit that is designed to allow for above or below average condition. Most insurers will allow movement within these thresholds.

Some insurers will allow you to go outside these bounds, which can be very meaningful where the vehicle you’re trying to insure is rare, collectible, in excellent condition or restored, or modified.

I always push for the highest value because of the way I care for my vehicles. Replacing it with a like-for-like is going to come at a premium, so it pays to get this right.

Take note that this can work against you in extraordinary circumstances. COVID was a great example, where a diminished supply saw vehicle values inflate, resulting in agreed values that were below market.

Repairs

The single biggest lever that any insurer has to improve profitability is in repair costs. Revenue comes in the form of premium; it gets invested, costs go out to run the business and most significantly, costs go out to repair or total loss vehicles.

The repair industry has changed markedly over the years, with massive amalgamation pushed by lower fees from insurers, coupled with increasingly high standards and requirements. Insurers will have arrangements with repairers on a panel, and economies of scale come from pushing as many repairs through these networks as possible, both for the insurer and the repairer.

I will never take a policy that doesn’t allow me a choice of my own repairer - both mechanical and panel. This helps me ensure the vehicle gets repaired to my standard. Having said that, assessors will scrutinise quotes; it’s not about painting a tailgate when you’ve had a front-ender as a favour amongst mates.

Ultimately not every panel shop or repairer is the same.

Authenticity

A car is not a conveyance for me, it’s my passion. So, when I speak to someone on the phone about the coilovers I recently added, it’s meaningful when the person on the other end knows what they are.

This may lead to a higher likelihood that they will understand me at my time of need. Is your insurer at the shows or events you attend? What do their staff do of a weekend? Is it real?

You can’t fake it this stuff, no matter how hard you try, or how many influencers you have pushing your product.

Service

This flows on from Authenticity a little but is moreso about the details. Many companies are looking to digitalise everything, from quote to policy adjustments and everything in between. It’s about reducing the costs associated with running the business. This is great stuff for an MBA class, but what does that mean for you as a customer?

Do you want to be able to talk to someone on the phone? If so when will that happen? I’m talking about opening hours here. Does it matter to you if they’re here or overseas? Who owns the business? Is it Australian owned? None of this may matter to you, but if it does, ask the question, don’t assume.

What you don’t want is an ordinary interaction with someone who has no idea when you’re on the side of the road, with your pride and joy requiring attention.

Product

This requires you to read the PDS, which is where many people switch off. Not all motor products on the Australia market are the same. These days we have products tailored for gender, type of car and the way they’re used.

The truth is a lot of it is pretty homogeneous, but you will find some products have benefits that simply cannot be replicated elsewhere. The market is made up of a few extremely large businesses and a range of smaller ones - it pays to take a look at them as that’s where you usually find the gold.

Critically, make sure you read your renewal documents! You’ll be surprised how often coverages change. It would be a rude shock to find out when you’re getting ready to call on your policy at claim time.

Price

Everyone’s circumstances will vary, but in my case, this is usually the last thing I look at. At every renewal, I make sure i’m comfortable with the above criteria and only then will I ask for a discount. It’s usually facilitated which is great, but the industry has seen huge increases. In my circumstances I’ve seen a 50% increase in my premiums over the last few years, thats after the small discount applied each year.

A staggering amount of money regardless. Do I shop? No, I don’t, in fact i’ve been with my current insurer for 20 odd years. At the moment, I am comfortable that my provider covers all of my required criteria appropriately. That may change though.

You dont buy the first or cheapest accessory or item for your car do you? Then why would you do so when it comes to selecting a product to protect it?

I’m keen to hear your thoughts, do you agree with the above? Have you got anything to add that I’ve not considered?