How it was always meant to be…

insurance premiums are supposed to be calculated against the risk.

The ‘risk’ is just the likelihood that you will encounter a hazard, like a traffic accident or a fire.

If you are high risk you get a high premium. That’s how insurance started. Insurance companies ran their ‘book’ in such a way that the book paid for itself and their only profit came by investing the premiums until they had to pay out a claim, so insurance companies in those days lived off the healthy investment income. This was the 18th Century, however…

Nowadays the insurance industry is more complicated. There are only around 40 insurance companies in the UK but hundreds of brands. So the intermediaries take a lot of profit.

In fact, there is margin everywhere. Take price comparison sites. They get a slice of the margin selling customers on to insurance intermediaries who take another slice before selling that business on to the insurer.

Reading this, you might think it’s better just to go straight to the insurer but incredibly the prices at the end of the day fluctuate so wildly between one risk and another against all those brands that it’s well worth shopping around.

As hard as that sounds, it’s still the only reliable way to get a good price..