The problem with buying Tyre Insurance independently
Like most things these days, Tyre Insurance is now something you can find on the internet.
Like other motor dealers offerings, such as Gap Insurance, it used to be the case that the only place you can buy this type of insurance was the motor dealer who supplied you the vehicle. This has changed quite significantly with many of these products, Gap Insurance in particular. In the last 12 months we have seen a number of providers also move into the tyre insurance market also.
However, there appears to be one small problem.......................
In order for you to buy a tyre insurance product then on many occasions you are required to buy a Gap Insurance policy as well. This may not be ideal for you, but there seems to be a predominance of this requirement from online suppliers. Why?
The issue probably comes with the type of cover tyre insurance is, and the potential issues with fraudulent claims. Tyre Insurance may appear an attractive option for vehicle owners who have already suffered some tyre damage, and the cost of a new tyre is actually higher than the cost of a policy. How would you prove that the event that caused the damage did not come before you bought the policy.
Of course Gap Insurance is quite different, as any event that caused the vehicle to be written off is likely to have been recorded by a motor insurance company, or the Police.
In the insurance world, tyre insurance products are prone to 'selection' in this way, and if the product is prone to this then the claims will outweigh any product sales made. You may say 'so what?', but a poorly performing insurance policy will simply be withdrawn, or the premiums increase dramatically in order to make the scheme viable for the insurer.
So what is the answer? Well it seems to buy a tyre insurance policy from an independent provider, you have to have an existing relationship with them, ie you have to buy a Gap Insurance policy from them.
It does raise an interesting point though, in that you may wonder how the FCA would look upon this? The premise of the previous FSA was to ensure that consumers would positively choose insurance products that they would benefit from. Does the 'imposition' of a Gap Insurance policy for someone seeking tyre insurance fit in with this ethos?
Lets look at an example.
A customer buys a brand new car on a 2 year PCP finance plan, and insures it with a motor insurance company. Now lets say the motor insurer are one of the few to offer its policy holders 2 year replacement cover on vehicles bought as new. This means that if the vehicle is deemed a total loss in the first two years then motor insurer would simply replace the vehicle with a brand new one. Sounds a pretty good deal really?
Now the customer wants to protect himself with a tyre insurance product, and is looking for a 2 year policy to match the length of the finance agreement.
There is a compelling argument that this consumer does not need Gap Insurance at all, as he already has replacement cover with his motor insurance which would take precedence over his Gap cover. Yet if he wants to buy a tyre insurance product from an independent provider, then he may be forced to buy a Gap Insurance product in order to do this.
Is this really value for money? The consumer is forced to buy a Gap Insurance product that they may have no use for. Would the FCA view this as an imposition of a policy that could provide no benefit? It is an interesting debate.
There are good reasons why insurers put these 'fail safes' in place, as we have described earlier, but if we are looking to provide even better choice and value, are there better ways of doing this?
One of the more popular ways of preventing 'selection' by those with pre existing damage has been used in the world of vehicle warranty for many years. It is simply to place an exclusion period from when you buy the policy, until you can make a claim. This means that if you buy a tyre insurance product today, then you could not make a claim for the next 30 days. Who would object to this, if they have had the reasons explained to them, although anyone with an existing condition may not be too pleased!
Tyre Insurance does provide certain problems for underwriters, especially compared to more stable products like Gap Insurance. Perhaps requiring the purchase of a Gap Insurance product is a short term fix for this, but long term we would like to see a fairer solution for consumers.