Do we treat hire cars the same as we treat our own cars? There have long been jokes about the invincibility of rental cars. Like most jokes, they are funny because they are based in reality.
For some reason, the urge to drive a hire car slightly more aggressively than you drive your own is something that fills even the most meek driver. Why? Because hey, why not?
In response to this urge, car hire companies hit drivers with insurance excesses. It’s fair enough that they do. If the car is damaged, then it has to be fixed. If all hire car drivers took up the challenge to see if their car can fly, then the damage, and cost to the hire companies would make business impossible.
Hire car insurance shenanigans
However, the way that hire car insurance works is a little different to your usual car insurance.
Six months ago, a company called Tripcover began offering accidental liability coverage (or excess reduction) at low prices throughout Australia. This marks the first time such a service has been offered in the country.
Tripcover offers a lower-cost alternative for liability coverage that can save consumers a considerable sum whenever they hire a car. Predictably, the car hire agencies are not happy.
“They seem to be trying everything in their power to prevent their customers from learning about this new service option”, says Desmond Sherlock, founder and General Manager of Tripcover.
Sherlock’s company has tried to advertise its liability coverage on car hire comparison sites in recent months, with unexpected results. The comparison sites have reported back to Tripcover that the car rental companies, frankly, hate advertisements that offer alternative insurance options.
So, this means that Tripcover has got to be on to something. If the incumbent players in the market have their collective noses out of joint, it must be doing something right.
What are they on about?
The problem is that the rental companies can charge anywhere from $22 to $27 (non-refundable) per day in order to reduce the excess to $300. This daily insurance fee is on top of the cost to hire the car. Sometimes, depending on the daily hire rate for the car, the cost of the insurance is greater than the rental fee.
It’s a kind of crazy that seems to belie an industry that is set in its ways. All the while the industry has found a way to make money without thinking of the practical realities for customers.
By comparison, Tripcover charges as little as $9.30 per day, and offers a 14-day money back guarantee.
Without any insurance, either from the rental company or Tripcover, if a hire car is damaged the minimum excess is usually $3,000. With some vehicles it can be more like $6,000.
The excess applies regardless of fault. That means, that even if you get the name, license and details of the insurance of the driver who slams into your hire car at the traffic lights, it does not matter. As the hirer of the car, you still have to stump up the full excess.
So, driving a hire car without insurance of any kind is risky. This is especially given that hire cars are often driven on longer trips, or in locations that are foreign to the driver. These two factors can increase the risk of accidents and other damage.
How disruptive is Tripcover?
The fees levied by car hire agencies for accidental liability coverage amount to more than $185 million a year.
So, it is no wonder that the emergence of Tripcover makes the car rental companies a little jumpy. Offering the same level of insurance cover at lower cost has the potential to significantly reduce the income stream of the rental companies from insurance commissions.
That’s right, the insurance offered by the car rental companies are underwritten by insurance specialists. In some cases, it’s the same company that is underwriting the cover from Tripcover, it’s just that the markup and commission structure is different. Allianz is underwriting Tripcover.
Tripcover has positioned itself to take a nice slice of the pie.
A little disruption in this industry looks like it will be a good thing for customers. It may not be so good for car rental companies.