Dangers of excessive bargaining on Motor Premium

We have seen clients who purchase Mercedes Benz and Land Rovers and then end up bargaining on the motor insurance premium. Most of us see motor insurance as an unavoidable expense. And most of us believe that if there are no claims then the premium amount has been wasted.

As brokers we spend the longest time negotiating with clients on the rates of motor vehicle than any other insurance cover. Yes, we do agree that insurance companies give very high levels of discount depending on how hard you bargain. But when you bargain and if the insurance company or the agent reduces the premium, always ask how they have arrived at the new premium?

There are different ways in which an insurance company can reduce your motor premium and bring it down to the rate you desire. If you have No Claim Bonus- awarded to you by the insurance company for being a good driver year after year- then the insurance companies apply the said percent on your premium payable. Secondly, every insurance company has leverage when it comes to offering discounts on the premium. There are companies who offer up to 80-85% discount on the own damage premium portion.

So far, so good. Now is the tricky part! Further you negotiate; any reduction in your premium would invariably be at a hidden cost to you. One of the most common ways in which the insurance company reduces your premium is by lowering your Insured Declared Value (IDV). IDV is crucial in the case of a claim- it is your sum insured based on which your claims would be settled. The lower the iDV lower would be the payout for a claim.

Increasing the voluntary deductible is another method used by the insurance companies to reduce premium. Every motor policy has a small amount as deductible kept in the policy to discourage small petty claims where the cost of claim administration is higher than the claim amount. This deductible amount has to be borne by the insured and only claims beyond this amount would be paid by the insurance company. So higher the deductible or the amount you are willingly to pay out from your pocket, lower would be the premium.

Declaring your No Claim Bonus incorrectly will lead to issues even after the policy has been incepted. There are people who hike their NCB percentage when they shift their policy from one insurer to another without realizing the fact that the accepting insurer also verifies your NCB percentage with your previous insurer. Such instances can lead to the insurer asking you for additional premium or in some case cancelling the policy as such.

Many clients have add-on benefits attached to their motor policy like nil depreciation benefit, replacement of key, cost of personal belongings and so on. Removing these add on benefits will reduce the premium payable. Some accessories can be excluded from the coverage without your knowledge (e.g. Air Conditioner, music system etc) to reduce premium. The fact that these benefits have been removed may come to your notice only at the crucial time of a claim.

So during your next renewal, avoid excessive bargaining on your premium rates, in case someone offers you much lower premium than others, understand how the premium rate was reduced. It will ensure that you don’t get any surprises during a claim.