Are Low Cost Car Insurance Companies Any Good?

Are low cost car insurance companies any good?

Asking if low cost insurance companies are good is like asking if cheap airlines are good. Some might answer without a thought, No, they are rubbish. Others have a cult like attraction to some of the low cost companies that have started operating in the last years. The answer as you probably expected is boringly non-committal, it depends. Just like the quality of a low cost airlines depends on their safety record, maintenance policy, staff training and many more factors that are not necessarily divorced from offering a lower price.

However it does become suspect when companies can offer the same or better at a lower price. They either have geniuses for managers that are using a secret method, are willing to work on a narrower profit margin or you are being ripped off (i.e. being cheated) or will be ripped off when you actually need to claim a policy.

The truth is that Car insurance is as much a science as an art. There are all kinds of mathematical models and equations that attempt to calculate risk and variables clients possess. For instance, an insurance company will be interested in calculating how much more expensive it is to provide insurance for a man than for a woman, a twenty year old or a forty year old. Their calculations will affect the prices of the premiums for the policy holders, how accurate the models are will define the success of the company. The point of this paragraph is that there is room for variety in car insurance, a company can be cheaper because they have a better (or worse) grasp of the prices and costs of a particular insurance.

A useful comparison is a construction company. Construction companies must provide the client with a quote for the work they are asked to price. Before they give a quote they must think about how much they will have to invest to get the job done. In order to do this they will have to have a good grasp of the cost of things, from the price of a nail to the wage of a joiner. The more accurate the costs estimate the better the price and the more chances the company has to prosper. If the company’s price is too low it will lose money, if it is too high they will probably not get many jobs as they will be outbid by the competition.

It works similarly for insurance companies. If they try and cut down on the trimmings and spend smartly they will be able to save a few pennies, as low cost airlines do by not offering movies or a decent meal. However the final factor in determining if they will be successful as a company and as an insurance provider is their ability of getting a feel of the market, the cost and risk of insuring a policy holder.

So what can we say about our original question. I’m afraid it’s still, it depends.