Requests for a discount on motor insurance as car being used less do not add up

Last week while right in the middle of some other problem posed of me, I received a call from a journalist asking my thoughts on insureds seeking a reduction on their motor vehicle insurance, as they are using them a lot less due to the restrictions currently in place by State and the Federal Government.

I tried to quickly go through all the issues and while I think the journalist did a good job picking up a lot of them, I just wanted to outline a bit more in detail.

1. No motor vehicle policy is priced purely on the number of kilometres driven. In my own case, I cannot recall my insurer asking me how many kilometres I drive.
2. Yes, some policies do but it is not the only rating factor.
3. The amount driven is typically an estimate and I doubt few if any insureds would be ringing up if a month after they took out their insurance they changed job which meant they drove twice as far to work every day.
4. Motor insurance typically has a very high-loss ratio and is a very highly competitive class of insurance in the Australian market.
5. It must be remembered that in the last six months or so, there have been an abnormal number of motor vehicle claims due to the bush fires, the flooding (how many idiots drove into flood water across roads) and hail storms. In my own family, we had one write-off and another vehicle badly damaged but repairable.
6. The cost, if issuing any refund, would exceed the value of the refund and only drive prices up in the future.
7. Cars can still be damaged even while parked. On the street from a passing vehicle, theft or damage by thieves, or storm damage.
8. Finally, I would expect the investment return that insurers are obtaining at present is much lower than predicted in their modelling, as well meaning their ability to refund premiums is even more reduced.

I know that a lot of people are hurting financially, but this is not the best way to look for money. A car is a valuable and a necessary item[1] and, like your home or your business, it needs to be insured to provide you with financial protection.

Insurance premiums are constantly being tweaked using very sophisticated modelling and the drop in motor vehicle accidents will be reflected in future premiums and should not be sought now.

As I finish this off, I recall that a number of times people have changed insurers and let the old policy lapse on a Friday and taken the new policy out from Monday thinking the car, caravan or motor bike would be safe in a garage on the weekend. Then that weekend the vehicle has been stolen or destroyed in a fire. It does happen to people and then the measly saving in premium is shown up for what it is, when you factor in the loss suffered by the uninsured person.

[1] I do not regard a private motor car as assets for many people, in a true accounting sense. A private motor vehicle is more a liability when you consider the cost of ownership, including deprecation, but that is a discussion for a different day.