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Small insurers often keep their premiums low by targeting lower risks. Drivers over 30 with good driving histories and living in suburbs with low theft risk will be welcomed with open arms by every insurer. But the under 25s will find fewer options open to them.

The big question about small insurers is the quality of their claims management. Drivers can expect to be involved in an accident once every seven to 10 years and it is then that they find out how readily their insurer will agree to pay their claim, how quickly the claim will be processed and whether the work will be done to a high standard with quality parts.

It is hard for consumers to get an insight into the claims management experience of different insurers. There is no public data on claims and some of these insurers are so new to the market that reports on how they handle claims would be based on very small samples.

The head of KPMG's insurance practice, Brian Greig, says the big insurers have “huge claims infrastructure” and promote service as their main selling point. He says not much is known about how smaller insurers handle claims. Greig says one indicator is the level of complaints.

The Financial Ombudsman Service (FOS) reported in its annual review, published at the end of September, that general insurance disputes rose 34 per cent in 2008-09. The FOS says the high incidence of extreme weather events, including floods, storms and bushfires, accounted for much of the increase. Of the total of 19,000 disputes handled by the FOS in 2008-09, 6400 were insurance disputes. Only credit issues accounted for more disputes. More than a third of the general insurance disputes (39 per cent) were related to Car insurance .

DISPUTES

The FOS says: “The most prevalent source of disputes concerned agreed understanding about the extent of the cover. The largest cause of disputes was generated by decisions made by service providers to decline...

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