Why is car insurance in the UK around 40% cheaper than Australian car insurance? The answer will vary according to who you ask.
Insurers will tell you it has everything to do with the size of the market for the UK market can achieve economies of scale rule on such things as cost of repairs (cheaper than in Australia), a bigger premium pool to pay claims from, better drivers and so on.
We beg to differ – driving conditions are really bad throughout the UK (it rains a lot & it snows), motorway speed limits are higher than in Australia and they live in a country where drivers are egged on by a continuous diet of Top Gear exhorting them to drive even faster in ever more exotic cars.
The answer, sorry to say, is down to poor economics – about 85% of the car insurance in Australia is written by 2 large insurance conglomerates, IAG Car Insurance and Suncorp Car Insurance. These 2 companies underwrite and distribute car insurance through various brands and channels – here’s a grab-bag of their names: AAMI, APIA, AON Car Insurance, Bank Of Queensland, BankWest, Bendigo Bank, Bingle, Buzz, CGU, GIO, HBA, IMB, JustCar Insurance, NRMA, Shannons, St. George, Suncorp, Westpac. The list is probably longer, we just got bored of doing the research!
So, we have 2 large companies who between them dominate the market but why don’t consumers know this? The answer to this question is simple, the insurance regulator, APRA, does not collect these statistics and both IAG and Suncorp have a vested interest in not divulging them too broadly! In our view, it’s a lower level of competition in Australia which leads to higher prices.
……and then both IAG and Suncorp spend serious amounts of money marketing their brands – we would guess that the final tally is in excess of many millions of dollars per company per annum. Let’s draw some obvious conclusions:
- spending large amounts of money on advertising raises the barrier of entry for smaller players – to enter the market you have to spend those kind of dollars too
- this is money which could be used to pay claims………..this would reduce costs, which would lower our premiums
The fundamental conclusion is that the effect of all this is less competition than is ideal, as it is harder for new insurance company entrants to get a substantial foothold.
IAG and Suncorp also refuse to co-operate with companies like ours. – They don’t have to, and they don’t. No law says they have to, but if they did, our insurance calculator could be even more accurate and even more use to consumers! – Just-Ezi firmly believes that consumers are looking for a simple way to compare the premiums charged by car insurers: however, price transparency will lead to increased competition and therefore a reduction in the profits, of the big insurers. So, other than through our website, consumers are deprived of easy price comparison transparency in car insurance – despite the fact that we have such price transparency on almost everything else: flights, hotel rooms, credit cards, mortgages – the list goes on. Sure you can find a premium for your car with one insurer by spending 20 minutes on line, but who has the time to do that again and again?
Depriving the consumer of the easy price comparison transparency is an understandable strategy in the short term, but actually myopic when viewed over a longer time horizon. The impact on our society of keeping insurance premiums high is that less people will choose to insure their car, thereby reducing the size of the pool from which losses are paid – this flies in the face of the first rule of insurance which is that the losses of a few are borne lightly by many: insurance functions well because of the law of large numbers, but the balance is a fine one, charge too much and people won’t insure – the system then breaks down – in Australia we suffer from a lack of easy price comparison transparency when it comes to car insurance which means we have to suffer higher premiums.
