A tale of two car insurance companies – Part 1

I recently had two very different experiences of dealing with insurance companies. In this post, I talk about how one of those companies got it so very wrong.

The letter
Zurich sent a letter reminding us that our car insurance was due for renewal. The letter informed us that the fee had increased – no surprises there. And, then, we saw the figure: the fee had nearly trebled! That’s right – it was nearly 3 times the amount we had paid in the previous year. Cue: shock!

There were no explanations, either. You would think that such a sharp price increase would be accompanied by a suitably good explanation. Fail!

The phone call
As the letter provided no explanation, we called to inquire about the reason for such a sharp increase. We were told that the company had updated their actuarial tables (also, something about merging with another, bigger unit and adopting the tables of that unit).

Do you see the logic for the price increase? Me neither.

Nothing changed in the driver’s behaviour or the car (except for a few extra miles and a lot less resale value). Yet, we were expected to pay a lot more money because… the company had changed its actuarial tables. Fail, again!

The price
As I discuss here, the key to pricing is to focus on the perceived value of the product on offer, not its cost. By perceived value, I mean what the product does for the customer, rather than the sum of its components, as discussed here. Did Zurich add any value to my policy to go with the price increase? No. None at all. The result was that the net value of this policy for me was greatly reduced (see box).

The price change was particularly bad because there was no palpable reason for the increase. For instance, there was no increase in one of the product’s components that they could not avoid passing on – like plane fares rising as a result of the higher cost of crude oil. It is like a restaurant increasing its prices because the tap is not working and they need to wash all the dishes and pans with bottled water. The solution is to fix the tap, not penalise the customer.

What next?
You will not be surprised to hear that we started looking for an alternative insurance provider.

Our task was made much easier by having access to the Internet. With very little effort we had a wealth of information at our fingertips – not only from the insurance companies themselves but also from customers and information brokers.

We had narrowed the choice down to a couple of companies when something happened: my husband had a (small) car accident. Don’t worry, all is well. I tell you more about it in this blog post.

Does this experience sound familiar? What other industries / companies are really bad at dealing with price changes?

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