So what, exactly, is a discount?

That’s a good question.

‘Discount’ is a word that sells things. In other words a selling tool.

Sometimes it means that someone somewhere needs to sell more policies and is prepared to lose some or all of their margin on the new policies to do that. Once they sell the policy, of course, they still will have many tens or hundreds of thousands more being sold or renewing, and the overall profit can sometimes bear quite a lot of discounting on new policies before they have to put the price back up. Sometimes, they are counting on making more profit back at renewal too.

But many discounts are just advertising discounts. In other words they result in much the same premium. We saw a discount this year (2006) of 50% on Motor Insurance and got a quote. A month later that was down to 5% but when we got a quote not much difference in the price…. So, some are genuine and others are not.

But how do you tell the difference?

Well, the FSA are constantly trying to do just that and it’s a tough question even for them. Yes, even with a bunch of Cambridge mathematicians, it’s not always possible to tell easily what’s a real discount and what is a transparent attempt to pull various shades of wool over the poor consumer’s eyes. So what hope do you have?

Sometimes, the best thing can be to ignore the word ‘discount’ and just get as many genuine prices as you can for your risk. If you let the “D-word” fool you, you could be putty in the hands of the most sophisticated marketers and actuaries on the face of the Earth. (Yes, they really are clever… you know when they say “it’s not Rocket Science”? Well, Insurance rating really is.)