YOUR MONEY : Drivers take risk on cut-price cover

Car drivers aiming to take advantage of the price war between insurance companies when they renew their motor policies are in danger of losing vital benefits without realising it.

Some cut-price comprehensive schemes are little better than third-party, fire and theft policies, with damage cover to the insured vehicle cobbled on, according to the RAC's broking subsidiary.

Nigel Richardson, a manager at RAC Insurance Services, said: "There is a danger that motorists opt for these cut-price comprehensive policies without realising the cover they will be losing."

His comments come as the cost of insuring a car has tumbled by about 10 per cent in the past year.

Insurers say the price cuts are due partly to a fall-off in the number of claims, the result of both milder weather and fewer theft claims. Some also admit that competition from telephone-based direct insurers such as Churchill and Direct Line has forcedtraditional companies to slash their prices.

One example is Norwich Union, which recently launched its Power Point initiative, with which brokers can obtain quotes and then transact all their business with the insurer electronically, thus saving time and paperwork.

Insurers believe that now they have succeeded in reducing costs the price cutting-bonanza will gradually grind to a halt.

An RAC Insurance Services spokesman said: "Companies have brought their costs in line with those of the direct insurers and the vast differences in price will no longer apply in the future. Some motorists may find cut-price comprehensive policies suitable to their requirements, but the danger is in finding out too late what your savings have cost you."

June Price, director of business development at Swinton, stressed that she was not blaming the insurers for offering policies with few additional benefits.

She said: "They are catering for a demand on the part of clients, and it is not their fault if motorists' emphasis on price rather than quality can lead them into making false economies. "The problem can be in the name itself, in that people may assume that simply because it says cover is comprehensive that is exactly what it means.

"There is also an assumption that a policy can be pretty basic simply because they won't be among those making a claim. In fact, statistics show that 22 per cent of people make a claim every year, so knowing what you are covered for is crucial."

Ms Price advised potential policyholders to ask not just the price of a policy but also what it includes. If a broker gives a quote without giving details of the policy, they should ask themselves why that is.

"Someone may think they are saving money on a policy," Ms Price said. "But then they have to pay more for the extra benefits that came with another, slightly dearer form of cover."