Money news, advice and predictions for savers and spenders.
By Jeremy Gates
Apart from the fact that they drive large vehicles, often at slow speeds along twisting roads with impatient drivers trailing in their wake, are farmers really entitled to enjoy better quality motor insurance than the rest of us?
Probably not. Yet the NFU (National Farmers' Union) Mutual got the consumers' vote as the most highly-regarded motor insurer - and home insurer - in Which? Money magazine's recent survey.
Selling also to many non-farmers through a direct sales force and 300 local agents, NFU Mutual celebrates its centenary in 2010.
Which? Money's other top providers, in descending order, are CIS, RIAS (launched in 1992 for over 50s), Frizzell (working with teaching and public sector unions and leisure groups) and LV=, formerly Liverpool Victoria Friendly Society, founded 1843.
In normal circumstances, the survey might not have attracted undue attention, but two surveys suggest the cost of car insurance is the next headache for many of Britain's 36 million drivers.
Consumer Intelligence (CI), a market research firm, says the average premium for comprehensive cover is nearly £565, up 19.6% in a year. The car insurance bill for all motorists has jumped £2.1 billion in the last year.
CI figures suggest premiums for 17-24 year olds have surged by nearly 25% in the past year.
The AA's British Insurance Premium Index showed car insurance premiums rising at the fastest rate since its records began in 1994: A third quarter rise in 2009 of 7.2% for comprehensive cover could mean a 20% plus annual rise in figures for the first quarter of 2010.
Two factors are blamed for the surge: Fraud, which adds £44 a year to every household's insurance budget, and the rising cost of personal insurance claims as lawyers urge accident victims to chase compensation payouts.
One analysis recently suggested that so many people make successful low value personal injury claims - typically £3,000 for whiplash injuries - that drivers who don't claim hand over vast sums to those who do.
However, AA spokesman Ian Crowder believes another reason for the rise is the search for the cheapest premiums on websites. The AA's Shoparound Index of the cheapest quotes rose by more than 11% in the last quarter of 2009 alone.
"We know people who shop around for cheapest deals will shop around next time, so companies think: 'Why make an introductory offer to somebody who won't stay and make a potential loss on their business?'" he says.
"The result is that premiums show a faster rate of increase on aggregator sites than across the market as a whole. Companies realise they can't afford cheap deals any longer."
Crowder says the first quarter traditionally sees falling premiums for car insurance, as providers chase market share ahead of new registrations in March.
"But in 2009, for the first time I can recall, premiums rose, and another hefty rise is likely in the first quarter 2010", he says. "We face 30% more claims from the snow and ice of January, and claims are already rising markedly for pothole damage."
Even with premiums at present levels, car insurance is a loss-making business: For every £100 paid in premiums, around £115 goes on claims and expenses (running the insurance company).
Mike Powell, analyst at financial researchers Defaqto, says: "Car insurers have not made a profit for about 14 years, and some pay out hand over fist.
"Now insurers must decide what to do. Small ones may pull out completely, while others will stay to use motor insurance as a way of getting profitable business in other sectors like home insurance."
Given the fierce competition on price, motorists are bound to ask: Is it worth paying more for better quality cover, or is price all that matters?
Powell says: "Out of 240 products, about 40 get our five star ratings.
"Better quality policies offer a courtesy car during repairs, legal expenses cover which may be useful in reclaiming losses involving uninsured drivers, specific provisions for the replacement of child seats after an accident, and perhaps a replacement car for any vehicles badly damaged in their first twelve months."
If drivers don't want to pay extra for 'bells and whistles', they have only themselves to blame if they don't get a good price.
AA Insurance, which works with aggregators like Confused.com and Moneysupermarket.com, handles policy renewals for more than one million customers, frequently moving them from one provider to another.
Crowder says: "People who see cheapest deals from companies they have never heard of will often pay £50 more for better quality products."
Adrian Webb, at esure and Sheilas' Wheels, says: "Thanks to websites like Gocompare.com, which lists the largest number of motor insurers, the car insurance market is more transparent than ever. Inertia is the motorist's biggest enemy when prices are rising.
"It makes sense to select car insurance on price, providing you are with a company you trust, and have a policy providing the benefits you need.
"If you take a policy stripped down to the bare essentials, with an unreasonably high excess like £500, you may well live to regret it. Few people have hundreds of pounds ready for sudden repair bills.
"Remember that the only moment when a motor insurance policy is useful is when you need to claim."
Webb says there are obvious ways of keeping premiums down: "If your car is fast, powerful and easily to steal, think about moving down a model.
"Married couples enjoy cheaper cover than single men, who are more prone to make claims. And premiums are obviously lower on cars like Volkswagens and Vauxhalls which are easy to repair through dealerships and a ready supply of spares. The bigger the engine size, the higher the premium."
Powell says consumers buying cover through websites should check details carefully.
"Does the quotation include cover for a courtesy car or legal expenses cover? With some providers, these are optional and may not be included in the quoted premium.
"Consumers buying through websites should always check policy excesses, to be aware of both compulsory and voluntary levels. And always check detail on the insurance providers' site before you purchase cover."
Watch out too for short-term offers, as providers seek new business from switchers. Until March 31, HSBC Insurance offers £30 cashback on policies which include a courtesy car (on comprehensive cover), a three-year guarantee on approved repairs, 90 days cover for travel in the EU, and RAC membership as an optional extra.
:: Information: AA Insurance (0800 107 0680 and www.theaa.com); NFU Mutual (0800 316 4661 and www.nfumutual.co.uk); Defaqto (01844 295544 and www.defaqto.com); HSBC Insurance (0800 107 1842 and www.hsbc.co.uk/insurance.
Poundnotes
:: With Standard Variable Rates (SVR) on mortgages set to rise, Ray Boulger at brokers John Charcol says that anybody on an SVR of at least 3.5% - or about to revert to one - should think of remortgaging if they have at least 20% equity in their property.
Boulger explains: "We recommend trackers to most clients, with rates likely to remain low for sometime, but those wanting fixes generally find five-year fixes around 5% more attractive than cheaper two to three year fixes".
:: After a "major charm offensive" on the household energy market, British Gas is the cheapest energy supplier, says Emma Bush at comparison site uSwitch.com.
"Online energy plans are consistently the most competitive, but BG's new WebSaver 6 launched on Feb 4 comes in at £899," she says.
"Consumers have a chance to take energy bills back to pre-2008 levels."
If they move to dual fuel, pay by direct debit and take online plans, consumers could cut bills by around £300, says Bush.
:: As London shares drift downwards, small investors have been big buyers of BP shares since they tumbled 4% after poorer than expected results, says leading broker T D Waterhouse.
Banks are also highly popular, with Royal Bank of Scotland the most popular buy, followed by Lloyds Banking Group and Barclays.
Other shares in big demand are hedge fund manager Man Group, and Vodafone.
:: Shopping for cars online is becoming more popular, says Which? Car, which trawled the car market for 14 popular new cars and found 12 cheaper online.
Five models were available at more than £5,000 below list price, and six were more than £1,000 cheaper online than in a showroom.
Completing a deal online also makes the sale subject to the Distance Selling Regulations, which gives customers a seven-day cooling off period after delivery in which they can reject the car and claim a total refund.
Which? Car editor Richard Headland says: "The internet is revolutionising the way people shop for cars. Not only can buyers find bargain prices online - without haggling with a salesperson - they have better legal rights too. The web challenges traditional car dealerships."
:: High five savers
Phone No Rate Account Period Deposit Interest paid
State Bank of India 0207 454 4315 5.25% (F) New Hi Return Fixed Dep Five years £10,000 Yly
Saga 0845 850 0664 5.10% (F) Fixed Rate Savings £1 Yly
Manchester BS 0161 923 8015 3.31% Premier Notice 6 35 Days £1,000 Yly
Cheshire BS 0800 195 1514 3.25% 30 day Postal Saver 30 Days (P) £1,000 Yly
Investec Bank 0845 366 6333 3.24% High 5 Three Month (P) £25,000 Mly
:: Top five borrowers
Phone No Rate Period Max% Adv Fee Incentive
HSBC (Rem) 0800 494999 2.29% discounted for two years 60% £1,499 Yes
First Direct 0845 610 0100 2.39% variable for term 65% £999 Yes
ING Direct (UK) 0845 603 8888 2.89% for term 75% £695 Yes
Post Office 0800 707 6204 3.49% variable for term 80% £599 Yes
The One account 0845 610 1060 3.75% for term 75% none Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
