The way to better motor insurance

The top end of the motor insurance market is fighting back against the cut-price insurers that have dominated the market in recent years, helping to drag down premiums. This week Zurich Municipal, the leading direct motor insurer specialising in public sector employees - civil servants, teachers, doctors and the like - teamed up with Green Flag, the third largest operator in the breakdown market, to add a free basic breakdown insurance to its standard policies without any increase in premiums.

ZM policyholders who break down more than a mile from home will be able to have their cars towed free to a local garage if they cannot be repaired on the spot. In addition, policyholders can buy a range of Green Flag breakdown services, including a Home Call service, a nation-wide breakdown service including free car recovery and transport to anywhere in the UK, and a Europe-wide service. All three can be bought for pounds 66.63 a year, roughly half the cost of being a member of the AA or RAC.

The AA has roughly 8 million members, RAC has 5 million and Green Flag about 3 million, but some 7 million motorists, around one in four, have no breakdown cover and depend on being able to call out a local garage, according to Peter Ablett, ZM's marketing manager.

As 8 million cars break down each year, about one in every three cars on the road, it leaves several million motorists facing a stressful and potentially expensive experience.

The purchasing power of the big insurers enables them to buy breakdown services in bulk. Breakdown insurance will likely become a standard part of motor insurance policies within a few years, Mr Ablett says.

Most of the low-cost policies motorists have pursued so enthusiastically in recent years contain significant limitations on claims and cover. Two- thirds of all UK motorists have comprehensive policies, but many "standard" comprehensive policies exclude the cost of hiring a replacement car, the legal cost of claiming against other drivers in a disputed accident, theft of car radios and stereos, replacement of broken windows and personal accident and medical expenses.

Excess charges, which motorists pay themselves, also loom larger than they once did. Most drivers accept a modest voluntary excess in order to reduce their premiums. But many low-cost motor policies now insist on a compulsory excess charge of as much as pounds 250, which motorists must meet out of their own pocket in the event of an accident. This effectively excludes protection against a much larger number of claims.

A combination of fewer comprehensive policies and increased competition, especially from the direct-sales insurers, which eliminate both brokers' commissions and branch costs, has led to a welcome fall in average premiums in the last two or three years. Motorists are already able to buy a number of add-ons to supplement the standard no-frills policies. Anyone who wants to be covered for legal costs can take out an Uninsured Loss Recovery policy, which normally costs as little as pounds 8 to pounds 12 a year as an add-on to a conventional policy.

Alternatively, motorists can chase further discounts for improved security devices for their cars. Insurers have traditionally offered lower premiums for cars that are kept in locked garages, and many specialist policies, including most classic car cover, require cars to be garaged. The AA this week pointed out that motor insurance premiums have begun to fall, reflecting the fall in car crime of around 10 per cent in each of the last two years.

There is no room for complacency, however. The UK remains the car-crime capital of Europe, if not the world. Almost 10,000 cars are stolen every week. Three out of 10 are never recovered, and of those that are recovered, three out of 10 suffer more than pounds 2,000 worth of damage.

The insurance industry paid out pounds 700m in claims last year, but many incidents of theft from cars are not reported and the true scale and cost of car crime could be substantially higher. Incidentally, the majority of cars stolen are eight to 10 years old and are stripped to supply the car spares market.

To counter the costs, some insurers now offer discounts of 5 to 17.5 per cent on premiums for cars fitted with approved safety devices. High security wheel locks cost upwards of pounds 30 but can make up their cost in less than two years. Electronic car immobilisers cost around pounds 130 from AA shops, including installation, but can often save up to pounds 100 a year on premiums, according to the AA. It quotes a saving of pounds 105 a year on a basic premium of pounds 470 for a married woman in south-east London driving a VW Golf worth pounds 5,000.

Costs rise to pounds 275 to pounds 350 for combined alarms and immobilisers, but they can pay for themselves in six months on high-risk cars like the Ford Escort RS Turbo. It claims even greater success for the Tracker system, which costs pounds 199 to fit and an annual subscription of pounds 61 a year, and often allows police to home-in on caches of stolen cars.

Another direct insurer, the Leeds-based Privilege Insurance, which caters for non-standard rists, offers discounts of 12.5 per cent on Cobra vehicle security systems. It also offers an average discount of about 10 per cent to drivers who successfully complete Masterdrive, a driver safety course that costs around pounds 50 and lasts about two hours.

Drivers buying used cars can also buy another service from Wiltshire- based HPI Equifax, which for pounds 28.50 will run a check on second-hand cars and provide purchasers with a guarantee of title, or pay out if claims are made within 12 months.