Are insurance companies the enemy? Well, you might
think so if you’ve received quotes to insure a modified high-performance
vehicle.
In some cases, you won’t be able to find a company
that’ll insure you and, if you do, you’ll likely be paying a bomb. We’ll never
forget the time we rang an insurance company for a quote, only discover the
annual premium was more than the cost of the car!
So, first, is comprehensive car insurance a
must-have?
Comprehensive car insurance is viewed by many
vehicle owners as an essential cost – their logic being along the lines of ‘if
you can’t afford to lose the car, you need to have it insured’. On the other
hand, some people take the line of ‘if you’re paying AUD$800 a year to insure a
car worth AUD$4000, you’re effectively betting that you’ll need to make a claim
within around four years’. (This ignores the advantages of third party property protection, which can usually be be purchased separately.)
Each of these is a valid viewpoint but the
strength of the latter argument depends heavily on the relationship between the
cost of the car and the insurance premium.
So what determines your premium?
According to SGIO’s Product Manager, Brad Warren, the most common factors are your age,
driving history, the type of car, where it’s kept, its intended use, whether the
car is under finance and if there is any non-standard equipment/modifications.
The most important factors are age and
driving history.
“Although I don’t really like to say it, it’s true that young
males are a high risk from an insurer’s point of view,” says Mr Warren.
According
to SGIO’s claims data, males contribute 60 percent of all at-fault claims in the
16 to 19 year old bracket. From 20 years of age and beyond, there’s very little
difference in gender bias.
As many will be aware, some insurance
companies will not cover drivers less than 25 years old - regardless of gender.
Again, this type of policy is based on the company’s claims data and is aimed at
minimising their financial risk. Many insurers also have policies regarding
recent traffic infringements, license disqualification and the number of
previous at-fault claims.
If you’ve been involved in any of these, your
premium will increase or you might not be able to obtain coverage.
Typically, a no-claim bonus strategy is used by
insurance companies to reward drivers who manage to avoid making a claim. A new
driver will usually commence insurance with a no-claim bonus rating of six - this means
you’re a high risk so you’ll be paying quite a lot for insurance. In most
instances, your rating will improve each claim-free year until you reach a
rating one status. Rating one usually reduces the cost of the annual premium by
around 60 percent.
Dominic Kruysmulder, Suncorp Motor Channel
Officer, says Suncorp offers rating one protection for life if you’ve been a
rating one driver for more than two years and had no at-fault claims in that time – so, even if you’re at fault in an
accident, you don’t lose your top-level rating.
On the other hand, Mr Kruysmulder says it is possible
to go lower than a rating six if you’re a new driver at fault in a series
of claims. Be warned – you can go backwards!
The vehicle make/model is another critical factor
in determining your insurance premium. A vehicle that is commonly involved in
claims – regardless whether it’s caused by collisions, theft or vandalism - will
demand a relatively high premium. Insurance companies typically record the
occurrence of a particular make/model vehicle involved in claims and the premium
is adjusted accordingly.
The premium that’s set for a particular vehicle
automatically takes into account any factory security features. Mr Warren says
there may be a premium reduction if the vehicle is fitted with an aftermarket
security device such as an alarm or GPS tracking system. This is assessed on a
case-by-case basis. However, it’s worth noting that, according to SGIO
statistics, nearly 75 percent of all claims are caused by collision – theft
represents only around four percent of claims.
Next, it’s up to you to decide whether you want a
policy that covers the vehicle for an agreed value or market value. In most
instances, market value is calculated annually and draws from industry
publications - SGIO and AAMI use Glass’s Guide as part of their market
valuation. An agreed value policy gives you the flexibility to pay either more
or less than the average value for a particular vehicle – you can save money on
the premium if you think the market value is excessive or you can pay extra to
cover a vehicle that’s in perfect condition, has very low kilometers or has
extra accessories.
“Wherever there are aftermarket accessories, like
an AUD$2000 stereo system, we’ll make a note on the insurance policy, increase
the insured value of the vehicle and adjust the premium,” says Mr Warren. It’s not
insured as a separate item.
And that brings us to the topic of bolt-on
performance mods.
Of those companies we contacted – SGIO, AAMI and
GIO – all were prepared to consider modified vehicles on a case-by-case basis.
Geoff Hughes, AAMI Corporate Affairs, says there are many cars that are
comprehensively insured with aftermarket wheels and lowered suspension but there
are no definitive regulations – what is certain is that, depending on your
other insurance details, you’re less likely to obtain coverage. Mr Warren says SGIO
follows a similar strategy.
“There is no across-the-board rule to modification
although the vehicle must be roadworthy,” he says.
“If the car is involved in an accident, you have not advised us of modifications and it can
be proven that those modifications were a contributing factor, we may be in a
position to withdraw coverage.”
This is a rare occurrence but it’s important to
keep in mind if you’re bolting on a supercharger or altering the suspension.
For similar reasons, it’s important to let your
insurance company know of any relevant changes to your driving history – a
process that, according to Mr Warren, many people forget. Take the time to read your insurance contract and you’ll see you must discolse any changes to your driving record. If you have been
convicted of a driving offence, you’re insurance premium may increase or, in
extreme situations, coverage may be declined. Either way, it’s important to get
this sorted out before you need to make a claim.
The locale where the vehicle is kept (often
determined by the post code) is another factor that’s taken into account when
calculating the premium. The cost associated with a specific area is based on
the company’s claim data and, in some instances, police stats may be checked.
Other factors, though having a relatively minor
effect on premiums, include \whether the vehicle is leased, used for business
purposes and whether you’ve been recently bankrupt – if you answer yes to any of
these, you will pay more for your premium.
So, clearly, insurance companies use some strict
rules and risk management strategies to determine your annual premium. But these
rules and strategies are fairly calculated and there is some flexibility to
accommodate modifications.
On-line
Premium Calculators
Many
insurance companies offer an on-line calculator foryour vehicle
insurance premium. The AAMI service (found at www.aami.com.au)
is typical of most systems and requires information on the make/model of
car, your age/driving history, finance, modifications/accessories and location.
We
used the on-line calculator to compare premiums and found some interesting
results...
Not
surprisingly, a 24 year old male driver cannot obtain insurance on a Holden VX
Commodore with a Gen 3 V8 – regardless of any other insurance details. However,
a 25 year old male owner can obtain insurance from AUD$620 annually so long as
he has a spotless driving record.
Amazingly,
a V6 version of the VX Commodore costs the same to insure as the Gen 3 – a 25
year old male is looking at AUD$620 for an auto Executive. Why is the V6 on-par
with the V8, you ask? We can only guess that AAMI’s claim data shows that a
young driver is an equal risk whether at the wheel of V6 Commodore or V8.
Further comparisons show that changing the garaged area to a higher risk zone
increases the premium by around AUD$30 and a recent claim for theft adds around
AUD$20. A 25 year old male owner isn’t allowed to add an exhaust, extractors,
chip and mag wheels to his V6 Commodore but just an exhaust and mags are
acceptable.
Verdict?
We strongly suggest investing some time grabbing some on-line insurance quotes
before going ballistic with vehicle modifications – you’re better off finding
out that you can’t obtain insurance before you go ahead...
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