Save money on car insurance…with The Aggregation of Marginal Gains

beckerApologies in advance if today’s post contains a large element of stating the obvious.

But I’ve come to realise that the bleedin’ obvious needs to be spelt out. Repeatedly.

Part of the problem is that almost everyone thinks they’re normal and sensible when it comes to money.

I wouldn’t be surprised if Boris Becker thinks he’s normal and sensible when it comes to money.  Boris’ career earnings from prize money alone were about $25m.  Which should have been enough. But apparently its not easy for Hard-Pressed Working Celebrities to make ends meet and Boris was declared bankrupt earlier this year.

For Boris’ sake, I will repeat that every £1 you cut from your annual spending by reduces the amount that you need for financial independence by roughly £25. So attack your costs with gusto.

Part of the reason that people often think financial independence is impossible is that (other than a few megastar entrepreneurs, footballers etc) it’s not one big obvious thing that leads to financial independence.

No, financial independence comes from The Aggregation of Marginal Gains.  In other words, being a bit smarter about each financial decision. Over time, each of those little gains adds up to bigger gains.  And many of the gains then get together to have babies that grew up and have other baby gains. And so on and so on.

People often make the incorrect assumption that we all pay broadly the same money for the same stuff. This is not true: we choose how much we want to pay for most things.

So when a journalist gets told to write a complainypants article about inflation, falling living standards etc etc its never very hard to find examples to “prove” that the cost of living is spiralling out of control.  Meanwhile frugal people are quietly saving money and wondering what all the fuss is about.

Let’s illustrate with car insurance.

The Escape Artist will concede that no one ever got rich JUST by saving money when renewing their car insurance.  But sadly, millions of people seem to draw the incorrect assumption from this that its not worth saving money on car insurance and other routine expenses.

Despite all the complaining about utility companies, ~60% of people have never bothered to change energy supplier and are therefore on expensive price plans. So The Escape Artist can’t help feeling puzzled when people say its impossible for Hard Pressed Working Families to save money because of [insert your favourite reason here…e.g. high taxes / inequality / leaves on the line / wrong type of snow etc etc…].

Back to car insurance. We recently received our renewal quote for our annual insurance for the trusty Skoda Octavia.  This was £328….a punchy 52% increase from the price of £216 we paid a year ago.

When The Escape Artist receives this news, does he fire up his keyboard and leave angry comments on the internet about how hard it is to make ends meet?

No he does not.  The first thing that The Escape Artist says to him or herself is that:

Yep, that cheeky price rise is totally to be expected… the insurance company are seeing whether I can be bothered to check the renewal price against the market…this is a laziness (or busyness) test!

And then does something about it.

The correct way to buy insurance is not to automatically renew with your existing provider as if you had slipped into a coma.

Nor is it to choose the company with the most familiar name or with the cutest kids in their TV adverts.  Nor go to a high street insurance broker with lots of expensive premises and employees.  These are high cost delivery mechanisms based on expensive marketing.

No, the correct place to start is to unleash the deflationary power of the internet. So my first stop was a price comparison website.

I put in my details and the internet spat out a “cheapest” quote of £945 (!!!).  At this point, I resisted the temptation to run back to my existing provider and bite their hand off gratefully accept their renewal quote of £328.

Instead I put into practice the first Principle of Life Hacking: Experiment.

First, I tried varying the types of cover to see how that changed the price.  I had asked for a quote on the basis of Third Party cover only (where you are only covered for damage you do to other people).  You might think (as I did) that the less insurance cover you ask for, the cheaper it would be. After all insurance is expensive and most people buy far too much of it.

But not in this case.  Apparently the logic is that many insurers assume that people just looking for Third Party cover only are slapdash types that don’t care about taking care of their own car or their own safety. Increasing the cover to fully comprehensive (where you are covered for damage done to your car, fire, theft etc etc) actually brought the cost of the quote down significantly.

I then did some more tinkering with other input assumptions to see how the quote varied in response.

Obviously some of these inputs are black and white answers to factual questions. For example, where the form asks whether you have any convictions for criminal offences, The Escape Artist recommends that you answer this question honestly. Partly because lying invalidates the insurance…but mainly because its the right thing to do.

But other inputs have some subjectivity and therefore wiggle room. Different answers to these sorts of question can make a difference to the cost. One such example is how you describe the occupations of the people covered under the policy.  Mr and Mrs TEA have some leeway here, combining as we do a number of different vocations.

Insurance companies vary the pricing to reward less exciting occupations. So the trick here is to avoid describing your occupation in the manner of a badass from Game of Thrones. So rather than describe my wife’s occupation as Businesswoman, Entrepreneur, Mother of Dragons, Khalesi, Queen of the Dothraki, Ruler of The Iron Throne etc etc I instead opted for part-time accounts assistant.  Which is also true.

You can also experiment with making yourself or your spouse the main policy holder (which is different from who drives the car the most) to take advantage of any sexism (if that’s what it is) in the insurers underwriting criteria.

I also experimented with changing the start date of the insurance policy.  It turns out that if you want your insurance to start immediately you pay a higher premium than if you plan ahead a little and have it start in say 10 days time.

Why is this? Well the insurance companies know that the more time pressure you are under to renew, the less price sensitive you will be.  Your objective is to avoid ever being a forced buyer of water in the Sahara. Once you understand this principle, you can see it operating everywhere in the consumer economy.

I experimented with different levels of excess (the amount of damage before you can make a claim). By raising this, you are partially self-insuring (cheaper) and you are also benefiting from The Alignment of Interests (another principle of life-hacking). You are credibly signalling to the insurance company that you are less likely to have an accident (now that your interests are more aligned with theirs).

I also experimented with the “add-ons”. For example, insurance cover for legal bills in the event of an accident. Or paying for a courtesy car.  Unsurprisingly, adding these increases the premium.  In general, these are sucker moves because insurance is expensive and most people buy too much of it.

But bizarrely, my tinkering revealed that ticking the box for unlimited Europe-wide cover cost no more than just UK coverage. This seems to violate the theory of “no free lunch” in economics.  In practice, companies know that not all consumers are equally demanding. Sometimes, it’s a case of don’t ask, don’t get.

The result of all this tinkering was that the coverage got expanded to Europewide (take that Brexit!) and the premium came down to £224 a year.

I then had a choice of paying monthly versus paying one annual installment.  The monthly installments (targeted at those living paycheque to paycheque) would have added up to about £25 more.  So paying upfront yields a risk free return of over 10%….not bad in a world of zero interest rates.  This illustrates the principle that those who don’t have a stash miss out on the best deals.

And other decisions made in the past contributed to lowering the cost. So my previous choice to pay less for basically the same car (and get a Skoda versus an Audi) will have reduced the insurance premium…as will the fact that wherever possible I choose muscle over motor.  We don’t do that much mileage and so are less likely to have an accident.  Every little helps.

These saving add up and, if invested, compound over time.  At a return of 10% per year, every £100 you save aged 25 will be worth £4,500 in 40 years time.

I’m not saying the insurance couldn’t have been bought cheaper. One of the “risks” of writing a blog about saving money is that I know that a lot of the readers will be more hardcore than me.

So I accept that some readers may now be laughing at how much I paid.  But that’s fine.  If one of those readers calls out The Escape Artist in the comments and shows a much better solution, I will not dig in, bluster and attempt to justify “my” way as the best.

No, I will bow the fuck down, listen with respect and share the answer on this blog. And then go away and shamelessly copy the better idea myself next time.

13 comments

  1. … while going through the same exercise last year I discovered that by saying my car was kept over night in my (safe, secure, locked) garage, it sent the premium up! If I tinkered and changed that to “kept on street” (incidentally where a previous car got driven into and nearly totalled by a van) it sent the premium down? The only explanation I could find for this on the internet, is there is a high number of claims from people reversing into their own garages. Yes, really.

  2. Hear hear! Amen for the marginal gains theory!

  3. “tinkering with other input assumptions” – wouldn’t a false input invalidate your insurance? Or give the insurer a reason not to pay out?

    One of the comments talks about where the car is parked – street or garage. If you say you park on the street and something happens when it is in fact in the garage or vice versa, aren’t you running the risk of being out of pocket + being blacklisted?

    I know that insurance is based primarily on fear (you should never insure what you can afford to replace unless it is a legal requirement) and I’m not above taking advantage where possible so I’m genuinely interested to hear your opinion on this. Don’t worry, I won’t hold you liable 😉

    I for one would welcome a lot more transparency and a lot less discrimination (price varies according to gender, postcode etc) from insurers, especially when there is a lack of choice.

    On an interesting side note and a counter point to the marginal gains theory is that I calculated that I spent 5 working days through the course of the year on getting cheaper prices from car insurance, energy bills to fighting a parking ticket scam*. If I was to be paid my normal salary for the above work – drafting letters, phone calls, research etc it would be around £653.84.

    The savings from cheaper prices has not matched up to the time spent or hassle – which seems to be increasing every year and will be far greater now that I’m looking to buy a house.

    But as a matter of principle I shall not give in and blogs like yours help me fight the good fight, so thanks. But I do wish I could bill them for my time, maybe I’ll write to my MP calling for such legislation.

    *[parking eye sent me a Parking Charge notice alleging that I used one of their APNR car park without paying. Received the charge two weeks after the event, thankfully I throw all parking tickets in the centre console my car, and was able to find the ticket – all details entered correctly, covered for my time at car park. Successfully got it thrown out. There was NO reason for a PCN. They didn’t even apologise or offer a reason. Think they rely on people paying up as they can’t find their tickets]

    1. You may already be factoring this in, but don’t forget that money saved is tax free. If you cut your bills by £100, you have £100 extra in your pocket (or Freedom Fund). If your marginal tax rate is 20% (it’s probably higher due to NI), you have to earn £125 to end up with £100 extra in your pocket. This boosts the effective hourly rate for money saving work.

      I do take your point in general, but can’t you deliberately agree with yourself to settle for less-than-perfect outcomes and spend less time getting them? e.g. say you’ll spend an hour searching for a cheaper insurance quote and just go with the best one you’ve found at the end of the hour, even if you suspect you can do much better by spending more time on it.

      1. Good points re tax and time limits Steve. I spent somewhere between 1 and 2 hours on the insurance.

        Writing the blog article took much longer but that is optional 😉

  4. I mean, we all have to learn, right? 🙂 We were able to get a discount on our car insurance by … well, asking for one, actually. We also did a driving program that scored us another discount; I also rolled our life insurance and property insurance into our car insurance and got a discount.

    I’ve learned to never be afraid to ask for discounts!

  5. Survivor · · Reply

    I always wondered why so many people wont review their bills annually with an aim to see if they can be collectively lowered & just assumed apathy was the corporations best friend. I still bet this is so, but recently on directly questioning friends & acquaintances, have been surprised how many people can’t bring themselves to haggle – mainly because they feel it’ll look like they’re cheap. This is ironic in a society where most people really, really don’t care about anyone else – certainly strangers – so the upside of that is that even if sensitive, you should be able to hustle all you want secure in the knowledge that people aren’t judging.

  6. David Kennedy · · Reply

    Just one more thing to add TEA…. always check cashback sites for insurance providers. I’ve save literally thousands over the years doing this.

  7. Lol….the annual fun of car insurance… I rang and bartered for a discount based on the quotes I had received online and bagged myself a good discount last year. It’s annoying that this has to be done but now the expected practice. The one niggle that gets me the most now is the online applications now results in auto renewal so you have to call them up to cancel the auto renewal process, so when doing that I get them to give me a discount then go….not good enough I have already renewed with Xxxx better luck next year!

  8. daverave999 · · Reply

    I know this is contrary to the spirit of things, but I’m currently happy with my motorcycle insurer as they allow a number of modifications without needing to be told about them, so don’t look elsewhere! This is a right nuisance with other insurers for my setup. It only costs around £100 a year anyway, so at most I reckon I’ll save £20, which isn’t really worth my time…

  9. Here’s another tip which is not entirely about money … If you get a car and buy insurance and VED (formerly known as tax disc) get your first VED for 6 months not 12. Then renewals of VED and insurance won’t happen at the same date and VED won’t be rejected because of the current insurance expiring soon while the next one has not yet started.

  10. Thanks to the advances in both smart phones and telematics, you can now push the envelope further by paying for insurance as you drive. Aside from a monthly base subscription the theory is you only pay for the miles / hours you drive. See https://cuvva.com/ . There is another one to launch soon called http://www.bymiles.co.uk

    Note that I have not signed up yet, but will do for the car that drives me to and from the station (yes am still enslaved but working on it) for a grand total of 2.5 hours of driving per week.

  11. I always thought the whole 3Rd party being more expensive than fully comp was a bit odd. I remember there was a cross over point when I was about 26/27 maybe when that happened so maybe it’s something age related as well?

    On the larger point, it baffles me why people don’t shop around especially now we have the Internet. Even before I found out about FI it was always ridiculously obvious the doing so is a good idea, why would anyone pay more money for something just because of sheer laziness?!

    Oh and Mrs T is also a part time accounts assistant so that is good to hear that means low insurance 🙂

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