Why do cars of similar values have different insurance rates
Alexander Forbes Insurance wants to teach consumers how different products operate.
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The average consumer reportedly finds many issues surrounding the insurance
industry ambiguous and it is important to change this fact.
As such, Alexander Forbes Insurance believes that it is imperative to teach
consumers how different products operate so that they make the best possible
decision.
"It is important to educate consumers on how insurance products work so that
insurance is used intelligently to mitigate risk, and it is not just seen a
grudge purchase," said the MD of the group, Gari Dombo.
Take, as an example, the question of why cars of similar values, or models,
have different insurance rates.
There are many factors that influence insurance rates. These include the
driver's profile, which could determine higher or lower rates, depending on the
risk factor.
Another thing that insurance groups look at include parts prices or frequency
of accidents.
"A new entry level vehicle worth R80,000 could have a windscreen that costs
R2000, while a six year old luxury vehicle, now also only worth R80,000 could
have a windscreen that costs R6,000 to replace," said Dombo.
As such, despite the fact that the cars retail at the same price, the costs
of repairing one is much higher than the other, and the premiums will therefore
differ.
When it comes to determining the probability of a car being in an accident,
Dombo says that this is more of a difficult task, "though we are able to tell a
client that one vehicle is a higher hijack risk or has a higher repair cost
profile than another."
Dombo concludes that while "on first reflection one would expect similarly
designed cars or cars of similar value to attract similar rates, once the
variety of combinations are factored in it becomes apparent that the risks, and
hence the rates they attract, are indeed very different."
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