Is cheap car insurance worth it?

Let's face it, Hong Kong is not the cheapest place on earth. Everything from food to rent to vehicles seems to come at a price these days, and the situation is not likely to change anytime soon. This is especially true when it comes to owning a car in the city. From paying for the vehicle itself, to tax, licensing fees, petrol, maintenance, parking, and insurance, you are looking at a serious investment that is considerably costlier than in many other countries.

As such, it is common to see people looking for the best deal when it comes to their car. One common place people in the city look to cut costs is on car insurance. Because there are some many different providers and plans available in the city, it is easy, and indeed essential, to shop around for the best quote. However, in recent years there have been a number of new plans developed that offer incredibly low premiums that may seem too good to be true.

While, on the surface, these plans do offer adequate coverage that meets the legal requirements set by the Hong Kong government, drivers who are considering securing this type of coverage need to be aware that the plans may not be all they are cracked up to be. Here are four things you should be aware of:

1. Your excess will be higher

In theory, all insurers are able to offer cheap car insurance plans to all drivers. All they have to do is set a premium that they believe people will agree to and is lower than the competition. The issue here is that when drivers start actually submitting claims the insurer inevitably need to pay out on these claims. If there is not enough money from premiums sold to cover this, the insurer will more than likely have to go out of business.

Anyone can see that this is not a sustainable business model, so insurers get around this by setting high levels of excess or deductibles on plans. Excess is an amount drivers need to pay before insurance coverage will kick in and cover costs. By setting a higher excess, drivers will usually need to pay more leaving insurers to pay for less.

In other words, if you do secure a cheaper plan, you will likely be paying more should you be in an accident. In our experience, the money saved on premiums will be far outweighed by the money you will have to spend on any excess should you be in an accident.

2. Your NCD likely won't transfer over

One of the most useful features of some car insurance plans is the No Claims Discount (NCD) which is applied to drivers who have successive years without claims or an accident. This can be a great way for good drivers to reduce their premiums, and one great feature of the NCD is that many insurers will allow you to transfer it from one plan to another, meaning you won't have to start again and wait years for a discount.

With some cheaper plans, however, the NCD might not be transferrable, meaning that if you decide to switch plans in a few years or have an existing NCD, it will not be honored by the insurer. This can be troublesome, especially if you want to increase your coverage, as you will need to pay the full premium.

3. Cheap plans usually restrict where repairs can be done

Another way insurers are able to offer cheap plans while still remaining profitable and able to pay out claims is by restricting the network of repair garages where any repairs can be claimed. If you take the car to a garage, not on the insurer's list, they will likely deny your claim, leaving you to pay out of pocket. There are a number of other concerns with this, especially if an insurer limits the mechanic shops they will work with.

Firstly, it could allow the garage and insurer to essentially set their own costs. In Hong Kong, all car accidents are legally required to go through the court system before an insurer will pay out on a claim. If the insurer limits the garages where repairs can be done, it is not impossible that the garage will inflate repair prices in order to increase profits, which, when combined with the higher excess limits, could result in you paying more.

Secondly, by restricting garages it is more hassle for drivers who are in an accident. Chances are high that a repair garage may not be near your home, which means you having to travel further to pick up the car or submit it for repairs. This can be a major hassle, especially if you need to cross the harbour or go half way across the city just to drop the car off.

4. Coverage may only apply to weekend drivers

Car insurance, like all other forms of insurance, is all about risk. That is why almost every insurer in Hong Kong will ask a driver what their occupation and intended use of the vehicle will be. If a person wants to drive their car for work e.g., a traveling salesperson, there is a drastically higher risk that the person will be in an accident. This means that insurers will usually attach a higher premium to that plan. On the other hand, if you only drive your car on the weekends then there is lower risk that you will be in an accident.

Insurers know this, and in cheaper plans will often limit coverage to specific times like weekends. This means that if you drive your car for work, or even to and from work, you won't be covered. If you are in an accident the insurer will deny all claims forcing you to pay out of pocket not to mention the fact that the police could charge you for driving without valid insurance.  

Therefore, it is extremely important to review the details of the plan before purchasing it, as you do not want to be stuck in a situation where you will be without insurance coverage.

Are there any affordable car insurance options?

The short answer to this question is: Of course! But before we look into that, it is important to note here that cheap insurance plans do make sense for some drivers. If you plan to only drive occasionally, don't have an existing NCD, or are ok paying a higher excess then they could be a viable option. Of course, there is a risk associated with these plans not present in the more costly car insurance plans, it all comes down to how much risk you are willing to accept.

For those who are a little more risk averse, it would be more beneficial to look into other, not-so-cheap options. There are plenty of plans available in Hong Kong at agreeable premiums that provide quality coverage and claims reimbursement. It is important to compare your options before settling on a plan and Kwiksure can help with that.

Visit our car insurance page to learn more about your options today.