Which insurances are still ripping you off?

Which insurances are the best value for money and which are rip-offs?

A year ago I created a league table of insurance products. At the top was the best value-for-money product and at the bottom the worst. I've updated my table based on the latest figures from the Association of British Insurers (ABI)*. No data is available beyond 2007, as yet:

Insurance League Table

(Remember, a higher % is better)

If the insurer pays out £1 in claims for every £1 received in premiums, the claims ratio is 100%. If 80p is paid in claims per £1 in premiums, the ratio is 80%.

Despite looking very hard I can't find new figures for some of these insurances since last time. Insurers conceal many of their ratios, particularly if they're not good, so I have to try to piece together evidence. I'll continue to keep digging and updating you as best I can.

Despite not finding new figures for half of the insurances, I think that these are still a reasonable reflection of value-for-money up until the end of 2007. It's worth reading my comments on each in my last report.

Pet and home insurance

There are two notable items on this table, which I've put in italics. The first is pet insurance, because I believe this figure is far higher than it should be. I explained why in here. Home insurance has leaped up from eighth place to third. This is as a result of the £3bn worth of flood claims in 2007. I have some early data for 2008, which is showing signs that the following year home insurance has been extremely profitable once again.

A loss for insurers

Great competition and the floods of 2007 caused the first loss since 2003 across general insurances of £600m. ('General insurance' includes car, travel and home insurance, while 'long-term insurances' includes products such as life insurance.) That means overall they paid out more in claims and in expenses (e.g. office and staff costs) combined than they received in premiums. The average claims ratio is 69% for all general insurances.

However, don't feel sorry for insurers, as that excludes the income they made from investing our premiums. When you add the investment income, they made the equivalent of £12.50 profit on every £100 received in general insurance premiums.

The future of insurance

I continue to be a fan of how the insurance market works. Huge amounts of competition means very efficient pricing. But some insurances are more competitive than others, and some totally suck, as you can see in the table.

Competition grows and fades every few years, in what's known as the insurance cycle. We've had a good period for the past few years - and insurers, therefore, a bad one - with great competition and low prices. Too much competition and crashing stock markets will soon reverse the cycle. In fact, when we get claims ratio figures for 2008 we'll already see they've worsened because premium prices have risen, and in 2009 we'll likely see it get a great deal worse.

Take car and home insurances, for example. I predicted in summer 2007 that both would rise in price dramatically. Prices for both comprehensive insurance and third party, fire and theft rose around 8% in 2008, whether you shop around or not. Another 8%+ rise this year is probable. Prices for buildings insurance rose around 8% if you stayed with the same insurer, as about 90% of you will have done. The shop around premium is 1% up, but still remains around £100 cheaper.

After crashing markets in 2008, next year's table, which will include 2008 data, will be much more interesting. Poorer investment performance, an increase in premiums to make up for 2007's floods and reduced competition will mean premiums will rise and the claims ratios will worsen.

Tips

You need to judge for yourself whether you need each insurance. You should take into account your individual circumstances: How likely are you to claim on the insurance? How much will the benefit be? How cost effective is the insurance? (See my table for that.) If the risk is low or the product doesn't offer good value, is it more appropriate to save money instead?

Remember the table shows average claims ratios. For all these products you can find bargains by shopping around, so you can get much more satisfactorily priced insurances, even for payment protection insurance.

Here's an example: broker LifeSearch said a company called Pioneer had an income protection claims ratio of 97%. I haven't looked into Pioneer to see if its business is safe, but you can certainly find bargains from safe companies.  Plus the Financial Services Compensation Scheme provides good compensation in the event of insurers failing.

You must always read and understand the small print before you buy, as some of the terms may make the policy less advantageous than you'd think. Policies do vary a great deal between providers.

> Compare insurance quotes: car, van, motorcycle, life, buildings, contents, travel and health.

*Source ABI documents are: UK Insurance - Key Facts, September 2008; Research Brief - Q4 2008 ABI Savings and Protection survey, January 2009; The Summer Floods 2007: One year on and beyond, June 2008; Data Bulletin - Money in funded pensions in 2007, September 2008; Annual General Insurance Overview Statistics, September 2008; Annual Long-term Insurance Overview Statistics, July 2008; Annual Invested Assets Overview Statistics, September 2008; New Long-term Insurance Overview Statistics, November 2008.
**Source: AA's British Insurance Premium Index.

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