Have you ever been in a taxi with only £10 in your pocket nervously watching the meter ticking slowly up another 50p? It’s a gut wrenching feeling – even when you’re sure it will not be more than £10. When the cab finally draws to a stop and the meter settles on £8, then you can breathe a sigh of relief, but only then. In those situations I would happily pay £10 upfront in order to avoid this ordeal. Psychologically this is true for most of us – we prefer a flat rate, even though it would be cheaper to use the meter most of the time. This is not just because we misjudge the amount of money we would save. Rather, paying a flat rate eliminates the stress of having to link every half-mile to expenditure.
This phenomenon is known in psychology as the “taxi-meter effect” and can be applied to the psychology surrounding insurance too.
Consider price comparison sites. The appeal of them is of having a lot of fixed rates readily available, without having to shop around for deals. However, how do you know that a quote generated by a load of algorithms based on the limited information you give it is correct, accurate and more importantly the cheapest option you have out there? More than that, how do you know that the comparison website is giving you a fair and full reflection of the market, given that they are sponsored by insurers and earn differing rates of commission for each policy sold? Keep in mind that while these sites generally do a good job of comparing a large number of quotes, these are still huge money making ventures making a lot of profit.
Understandably many who set out to buy insurance find the huge volume and number of variables around insurance products completely overwhelming. Research shows when using price comparison websites in order to simplify the matter, many will cut down the large number of variables to what they consider the most important: headline price, excess and the number of add-ons included (motor/home) or the level of cover included (travel). With travel insurance for example, many focus on the levels of medical cover shown – normally ranging between £5 – 20 million. A higher number was often the influencing factor without considering any other features, or thinking about the amount of medical cover actually required.
So how does the “taxi meter effect” apply to price comparison websites? Quite simply the appeal of being able to simplify the process massively overrides the unnerving task of doing the leg work yourself, even though you will likely find a better deal by researching the products on offer extensively. Therefore to avoid this consumers will often opt to pay a higher price, or end up being under or over insured, simply to avoid the complication of the alternative.
This is where brokers such as Buckingham Insurance come into their own. Our advisors can tell you exactly what you need within a few minutes, and our long standing relationships with our insurers mean we can charge you a competitive price for cover you can rely on.
If you’ve had trouble finding the right cover and are tired of the jargon and hidden costs then give us a call on 01246 575625 – we’re confident we can give you the right cover for the right price.