Finance clinic

H: Jayne Constantinis, host
J: Janet Connor, Managing Director of RIAS
C: Cliff D'Arcy, Broadcaster

H: Hello and welcome to the Personal Finance Show, I'm Jayne Constantinis. Now then, few of us can deny that we're feeling the pinch at the moment, and that means that many of us are having a closer look at our finances. From shopping around for the best deals to cutting back on frivolous expenditure, it seems everybody's keen to cut costs. How far can you go before you start making the kind of cutbacks that might put your family at risk? For example, a recent survey by RIAS reveals that over a quarter of people have been cutting back on insurance policies. Well joining me today to talk about this and more is personal finance expert, Cliff D'Arcy and Janet Connor from RIAS, welcome both of you to the show. And of course we're live so if you've got a question for either of our guests, just type it in the box on the screen, send us your name of course, and we'll get through as many as we can during the course of the show. So Janet this research that sounds rather alarming – what's going on?

J: We were a bit alarmed. It was quite startling to find that 37% – that's 3 out of 8 people have taken some steps to either cut back or cancel their insurance and more to the point I think they know that they're doing the wrong thing, because 40% – that's 4 in 10 were saying they felt guilty about it. So it's a lifeline and they know they really shouldn't be cutting back

H: And what in essence are the risks Cliff? How are they putting themselves or their family in danger – if that's not too melodramatic?

C: Well of course insurance is about protecting yourself from the unexpected, so you can't really foresee what's going to happen. In a sense that's why it exists, it's protecting you from the slings and arrows of outrageous fortune, and the problem is of course that you can pay premiums for years, never make a claim, get fed up, think well these insurance premiums are dead money, cancel your policy, and then Murphy's Law, two months later you need to make a claim. So I think that people are making the mistake here that it's very easy to cancel a direct debit for an insurance policy, but what you're also doing is cancelling something that's potentially very valuable – a safety net, as Janet has said, and I think that's a false economy

H: And – did the research reveal what kinds of policies people are tending to cancel?

J: Yes it covered most policies, but I think the thing we're most alarmed at is, particularly home contents policies. We've been seeing contents cover increase actually over previous years, I think people have become very aware of the risks, but recently what we're finding is that people are looking to cancel that particular type of cover, and again you know what you find in a recession is that burglary and theft can increase, so to not have that contents cover which might save you a couple of hundred pounds in a year and then to have to make a claim, can be really quite distressing because then you wouldn't have the cash to be able to replace the items you lose

H: But you can kind of see the scenario – you can see the family around the kitchen table with all the bills and the direct debits and so on, and it's very easy to put a line through, as you say a big, you know a lump sum like that, rather than saying I'm not going to have that latte on the way to the office every morning and save £2 a day. But it's a false economy

J: It is and I think that you know you mentioned latte there, I think that's a great example – we all spend money on magazines and on coffee and maybe perhaps on going out, that we could all cut first before we cut our insurances. But even on insurances there are ways to save money – you can shop around, you can have a look at the cover you've got and make sure it's fit for you

H: As an independent expert how would you go about sort of spring cleaning your insurance commitment if you like?

C: Well I like Janet's comments about what the Americans call the "latte factor" – they, you know it's the little frivolous things, the money that spills through your fingers, but then again I think a US architect, Frank Lloyd Wright – he said "give me the luxuries of life and I'll do without the essentials" – and for many of us we kind of wallpaper our lives with these little luxuries, everyday luxuries – it's almost a contradiction in terms. But I do think that the way to go forward is to use the internet – because all of us bank online these days, a good 8 out of 10 adults use online banking. A simple way to have a look at your spending is to download say the last 3 month's bank statements, or if you don't have those then use the paper versions. Have a look through and see where the money is going. And prioritise your spending and your bills. I mean obviously you're not going to stop – you're not going to stop paying the mortgage so that you can keep having your morning coffee, but equally I would argue cancelling your or reducing your car insurance, your home insurance, life insurance – going without travel insurance – in order to keep up non-essential spending, is a mistake – a big mistake andi know we're all suffering in the credit crunch, and personal wallets are being squeezed throughout the country, but I think there are probably better areas to cut back, than some of the essential safety nets in life.

H: But what we're not saying is you have to continue paying your current level. What's your advice about how to look at your various policies – we all must have, I don't know 5, 6 ,7 policies probably if you add them all up. How can you look at them on an individual basis and make sure that you're paying as little as possible?

J: Well a couple of things for me – I'd say start by understanding the cover that you really need, that's really important to you. And make sure that you're not over-insured. There may be some cover for example that you've got on more than two policies. Personal possessions away from home is a really good example of where you might find you're already covered in your home policy, so you can maybe reduce the cost on your travel policy. So that would be one example. I think do check your high risk items. You may find actually you're under-insured and some of your items need to be increased, but equally you might find you're over-insured for example electronic goods, computers, cameras – you can find that they can actually go down in value. So make sure you've really thought about the cover that you need and that you're not over or under-covered. Those would be my two pieces of advice

C: I would add to that – sorry Jayne -

H: No go on

C: Insurance shouldn't be static, it should be dynamic. You don't buy one policy and renew it every year for the rest of your life, and it suits all situations – your life will change, you may have children, move into a bigger house, get a different car – so your insurance policy should change as your lifestyle needs do, so that means looking for the cover that suits your situation, and not relying on a one-size-fits-all approach

H: I think that's a really good point because speaking as an ordinary punter, you know you do your insurance policy and then it's parked and you do not want to revisit it because it's dull frankly isn't it?

C: Absolutely

J: Yes the specifics to do it, yes -

H: Who wants to go around the house with a clipboard assessing how much you think your goods are worth? I mean it's really intrinsically very boring, when you could be doing something more interesting. But we should be doing it, is what you're saying?

C: Yes I mean the research from RIAS also found that only about 47%, so less than half of adults shopped around when they received an insurance renewal notice – now to me that's crazy. An insurance renewal should be a call to action. When one comes through the letterbox, hits your doormat, the first thing you should do is get on comparison websites, or get on the phone – s tart shopping around for a better deal, because traditionally insurance companies do tend to raise premiums for existing customers year on year, and I had a reader who was furious to find out that after 20 years with the same mortgage lender, he discovered that his basic insurance premium for home buildings and contents – £400 a month – hadn't shopped around for 20 years, got a quote online – £160 and he was really angry with himself because for years and years and years he's paying perhaps two / three times as much as he needed to

H: Yes

C: And so that advice sounds really trite, shop around – but less than half – sorry, fewer than half of us do that, so it's imperative that that renewal notice is an opportunity for you to save some money, not just this year but ongoing, year after year after year

H: So it's a bit of leg work but how satisfying is it when you do find that you can save money easily like that, and in fact that leads me to Grant's question who wants to know "what determines an insurance premium increase each year? Sometimes a schedule comes through and the increase is above inflation, is there a standard rule for this?" Janet do you want to answer that?

J: Well a number of things can influence your premium and clearly the most obvious thing that can influence it is whether you've made a claim in the prior year or in years prior to that. So that's the first thing. The second thing is whether the general risk of the area in which you live has increased, for example due to crime rates or potentially flood risk. And one of the other important factors is whether claims costs are going up, so particularly in the industry that I'm in, in home and motor, you are finding as I think maybe people are aware that claims costs are going up, so that will be a factor as well, so those will be the three most obvious things that will affect your premium. But it is true to say that it can go down as well, so as you earn no claims discounts or perhaps you get to a particular point in your policy life, there are opportunities to reduce the cost as well. So it's not always up

H: So that brings me to talk about how you can reduce your risk – how can you make yourself a better bet if you like for insurance companies?

C: Well as you say, a better bet – insurance is a gamble. You pay in a premium that goes into a big pot, and the unlucky people are forced to make a claim and take the majority of that pot away. The – your idea is to reduce your level of risk, so that you present a more attractive proposition to the insurance company and therefore get a lower premium, and the way to do that is to think about what is likely to cause a claim. So for example we know in a recession that crime rises – it happened in the early '90s, it happened in the early '80s. You see more burglaries, break-ins, thefts, muggings etc. You know times are hard, people do turn to crime. And so what you need to do is to improve your home security for example by putting better locks on doors, windows, gates etc. Fitting a burglar alarm – that can bring your premium down by 10-15%, and likewise with car insurance there are discounts that are available to careful drivers, for example if you do relatively low mileage you can attract a discount. If you're an older driver which RIAS specialises in, or if you garage your car, it's off the street, it's not in the public eye, it makes all – those all add up to making an insurer feel better about you as a risk, an therefore willing to offer you a lower rate

H: So you mentioned the age factor – is it a – sounds fantastic, I can't wait to reach the threshold

J: Yes

H: You specialise in the over 50s -

J: Yes

H: Because they're a lower risk in some areas or -

J: Yes indeed and we find by specialising in the over 50s we can negotiate the best rates from our providers. But also provide the best service. We pride ourselves on being there to talk to customers, not just providing a website service, and so when I talk about making sure you've got the right cover, whether it be travel or home or even car, it's nice to be able to pick up the phone and certainly our audience, the over 50s, like that option. Not all of them take it up but they definitely like the option

H: I think increasingly people like to speak to a human being -

C: Yes

H: Don't you think there's a bit of a backlash against doing everything online?

J: I think it gives you a little bit of certainty doesn't it if you know that there's somebody on the end of the phone, I mean we're based in Bournemouth and Belfast, we're real people, we're there to answer your questions whether you're buying from us, you know renewing with us or having some sort of change of circumstances in the middle of your policy year. So I mean I think that gives people a lot of confidence, it does me I know with my own policies

H: Yes same here. Now an interesting point, Henry Richards which – you can tackle if you would – says that he has often found some insurers giving him very high quotes and he thinks it's because he's nearly 60. He says it's very frustrating, he's a good driver and he's never had an accident. What's going on there then?

J: Well some insurers do put, clearly, their premiums, up by age. He sounds a super driver, and we'd love to quote him. I mean someone who hasn't made a claim and is, for example, a careful driver clearly maybe he's garaging his car as Cliff said, maybe he's doing low mileage, all of those things are things that we can give him a discount on. And one of the things he will have is a no claims discount, which can count for a huge reduction in his premiums. So I would say shop around, have a look at what's available in the marketplace because I'm sure you'll be able to get a good rate

H: So you were talking about you know the human factor. If Henry were to ring you, how – how bespoke if you like can insurance companies tailor their policies to somebody like him?

J: Well I think the thing that we can do is understand what's important to the customer, understand what type of cover they're looking for, what their personal circumstances are and what they're driving habits are. How they look after their car, that kind of thing, whether they've modified it, for example. So it's quite a thorough set of questions to make sure we give the customer their want – what they want. Another couple of things we do for drivers is ask them whether they want some breakdown cover, and whether or not they want to protect their excess. That's something that can worry people, finding the cash to cover an excess if you have an accident, and that's something else we can do. So yes we can definitely tailor the policy to the customer's needs, yes

H: Leo has brought up the subject of travel insurance. He says "is it just a fad – being from the EU aren't we all covered in health terms should anything go wrong." What's your view on that?

C: I think if you have an accident abroad and you have an EHIC card, a European health insurance card, which is a little photo card the government's giving out to replace the E111 document -

H: Do you actually – sorry to interrupt, do you actually physically have to get one of those cards and have it on your person?

C: It's certainly advisable, foreign and commonwealth office advice is if you're going abroad to the EU or EU zones you should take an EHIC card

H: Ok

C: Even my children have one for example

H: Yes

C: They're photocards, they're quite useful. And if you lose one you can get an instant replacement without cost. But the problem is that governments don't offer tourists terribly attractive levels of medical care, because otherwise it would encourage health tourism between European nations. So you're in a situation actually where – if you do have an accident or fall ill abroad, you will receive a certain level of care, but it may not necessarily be the equivalent say of the NHS at its best, and in particular in Eastern Europe, you may find countries with very limited budgets and therefore very limited delivery of healthcare. But I would say this to Leo that roughly half a million Brits go abroad each year without travel insurance, and something goes wrong. Now with an EHIC card that would cover a bit of your medical expenses. Not necessarily all of them. But what about cancellation cover? What about if you're mugged, what about if you lose your wallet? What about if your passport is stolen? Travel insurance is much more than about medical insurance. It covers a whole range of items, and before you buy a travel insurance policy you should know what you're getting, so you should be looking at the levels of cover and the excesses which is your contribution to the claim before you buy

H: What do you think about these annual insurance – travel insurance policies? Are they a good idea?

J: Well we were talking about this earlier funnily enough and I think if you are travelling frequently and certainly the over 50s are large travellers and do so frequently, it is quite a good idea to get a quote and look at annual cover, because you can get better value. I mean if you're travelling infrequently then maybe a single policy's right for you, but certainly we felt – didn't we – that annual cover was something that you really need to consider, particularly for the majority of us who now travel frequently. And even in the UK if you're travelling then clearly you would be covered also

C: Yes. That's one of my benefits. I mean – if I take say two or more holidays a year, generally I'll buy an annual policy rather than single trip because not only does it cover those two holidays, it covers any impromptu holidays and it also gives you cover when you're travelling in the UK. So I think you know you're talking about the difference between, say – £60 or £70 for a typical annual policy and maybe you could be paying £30-£40 for a single trip, so why not go the whole hog and have an annual policy but again when it comes up for renewal, that should be your incentive to look around for a replacement and not necessarily just allow your annual policy to rollover

H: Yes it's the time factor again isn't it? It's devoting a little bit of time and legwork to that research

J: But it doesn't take long, I mean a typical phone call into RIAS takes about 15 minutes, and if you took a travel policy in particular about 70% of our customers will go through medical questions, because they're keen to cover medical conditions so that if they were away a particular condition would be covered. And equally that doesn't take long either, so I think the research we've done has suggested people are prepared to invest that time because it's really worth it

C: I would encourage them to do that, adding to what Janet has said. One of my relatives last year was having difficulty because she's over 60, going abroad – finding travel insurance to cover her existing medical problems. And so she was going to travel without travel insurance, and I said no no, please don't do that. Let's look – let's find you a specialist travel policy where you're medically underwritten, which means they take account of your medical history and your existing illnesses, and then they'll quote you a premium which is loaded – in other words it's higher than a perfect customer would pay. So in the end my relative was able to go away with a policy which was about 50-70% more expensive than a typical policy, but she went on holiday with confidence knowing that her existing medical problems were covered and the insurance company won that gamble because – no claim

H: It is absolutely peace of mind isn't it. It's when your suitcase comes round the carousel and it's broken and your stuff's all out and you think – ok inconvenient but it will be sorted or you're thinking ah. Final question from Lucinda who says "I once opted for third party insurance on a car but wrote the car off, and now I'm carless" – not careless – "so my advice is go full comp." It's more of a statement than a question really

J: I think it's an interesting statement though. I mean in that particular example Lucinda took a gamble didn't she?

H: Yes

J: She decided that the premium was probably a little too expensive and so she'd take the risk of covering if you like, that risk herself, and it materialised and you know – sadly for her it's left her without a car. But you can see why 95% + of all the policies we sell are fully comprehensive

H: Yes so give me your one – in these troubled times, people are looking at those bank statements, they're trying to save money, they're trying to be careful. What's your one piece of advice?

J: Make sure you've got the cover that you really need and you know really assess what that need is and make sure that you give somebody a call to make sure that you get the cover that you need

H: Ok Cliff – your one piece of advice?

C: My piece of advice would be rather than cancelling policies, try to spend less on getting more cover. So look at what you've got, don't pay twice for the same thing, for example buying travel insurance with personal possessions when you've got personal possessions on your home insurance. Or paying for personal possessions on travel insurance when you've got it on your home insurance, and things like mobile phone insurance which offers very poor value for money. Payment protection, extended warrantees – these are policies with very high levels of profit built-in. so I would say if times are troubled and your budget is being squeezed then please look to reduce the amount you spend on insurance rather than potentially cutting a very valuable lifeline

H: Thank you. Very useful advice, we're all going to quickly rush off and make a list. Thank you, very interesting, thank you for coming in to talk to us. If you'd like to find out more you can go to the RIAS website which is rias.co.uk. Thank you for watching, bye bye