The Budget Room

The most likely reason for a motorist to be unhappy about their car insurance is paying for things they don’t need. For example, paying for a car which they use differently to “normal” motorists. They’re not commuters, or use their cars mainly for local driving but have to pay the same premiums anyway.

There’s a lot of logic in this view. The New Economy is systematically demolishing the commuter society. People now live and work differently. Self employed people are rapidly becoming a very significant demographic around the world. They don’t need the commuter version of insurance. On road costs are bad enough, without paying for insurance which they don’t really need.

The domestic market is changing, too. A car may be operated by several drivers. The “family car” is actually driven by the entire family. Some cars are essentially kid taxis and shopping vehicles. Others really are only used on weekends, because the on road costs are so high.

In this environment, different types of insurance, notably the new “custom” insurance concept, are taking up market share in a big way. Custom insurance is based on car usage and the needs of the insured, not standard policies.

The basics of custom car insurance include:

• A range of choices and rates for car usage
• Special terms available for emergencies
• Policy management online
• Car insurance quote online
• Replacement car where required
• Insured people manage their policies online
• Phone and online support for customers

The commercial realities of this approach are becoming pretty clear. These policies, operating in an online environment, don’t carry the same costs as traditional insurance. They’re also much easier policies to operate for customers, financially and administratively.

That’s what’s been making the difference.  These policies naturally outperform the traditional type commercially, and the lower overheads make it easier to offer better deals. It’s no surprise that the market has been voting with its dollars.

These policies are extremely portable, and can be set up in minutes. The lack of bureaucracy is another incentive to motorists tired of the sometimes excruciatingly slow pace of “normal” insurers. The car insurance industry, which handles millions of vehicles, has been strangely slow to adopt this type of management concept, and the result has been that customized insurance is taking market share.

This type of insurance is far more appropriate for a world where the entire spectrum of domestic costs has changed so dramatically. The idea of manageable insurance costs and policies is nothing less than appropriate. The issues raised by custom insurance are very much a product of their times. Whether the industry is able to respond in the same way is debatable. The corporate structures are big, and restructuring millions of policies could only be expensive.

It remains to be seen how custom insurance will evolve. It’s already clear that the current version is likely to develop further with more choices and more cost options.  The economic realities of this century are definitely more likely to relate to “designer” financial products than single stream products based on a stereotypical, outdated view of car insurance.