Total Cycle Assist

[Reigncloud]

Bike insurance doesn't actually exist. What you are offered is actually a sinking fund.

This is effectively what insurance is though - taking one-off risks and evening out their costs over time. You also take on a 'reverse' risk as well - the risk that you won't have to use insurance before you've paid for the bike over i.e. your bike is not stolen before you've paid the insurance company the cumulative amount equal to the bike's value. This reverse risk is negated if your bike is stolen within a few years of paying for insurance, in which case you've paid far less than the value of the bike and you get a brand new steed!

The other point to make is that bike insurance is not necessarily '10%' of the cost of your bike each year anyway. If they go on the household insurance then the relative increase (typically less than £100) is far less than 10% per year, especially when you're covering multiple bikes within the one policy.

[horizon]

Bike insurance doesn't actually exist. What you are offered is actually a sinking fund.

This is effectively what insurance is though - .

No it isn't. The point I'm making is that a sinking fund is used to accumulate money for an inevitable, predictable but manageable event (such as replacement vehicle parts, a new roof after 30 years, the repayment of bonds). Insurance on the other hand spreads the risk of an unlikely but catastrophic event (e.g the burning down of a building, a crash write off of an expensive car).

IMV, insurance companies view the theft of a bicycle as a routine and expected loss (say every ten years) and so quote an appropriate price. However, not only can the owner of the bicycle do this for himself (i.e. put the same money aside to cover the loss), he/she can minimise the losses (by being careful) and in any case can manage the loss personally. They may call it insurance but is is still a sinking fund with the difference that they walk away with the cash! In fact a cycle owner could intelligently put away 10% of the value of the bike each year to cover theft, complete overhaul or replacement every ten years.

[horizon]

[This reverse risk is negated if your bike is stolen within a few years of paying for insurance, in which case you've paid far less than the value of the bike and you get a brand new steed!

This is the myth. Don't forget that you then carry on paying the insurance premium - the cost over ten years is the same whether your bike is stolen on day 1 or day 36500

[Reigncloud]

No it isn't. The point I'm making is that a sinking fund is used to accumulate money for an inevitable, predictable but manageable event (such as replacement vehicle parts, a new roof after 30 years, the repayment of bonds). Insurance on the other hand spreads the risk of an unlikely but catastrophic event (e.g the burning down of a building, a crash write off of an expensive car)

I would argue that the loss of an expensive bike is a catastrophic event! And if you're half sensible it should also be an unlikely event.

But as I've said, most sane people wouldn't pay 10% of the cost of their bike(s) every year in insurance - the relative increase in household insurance policies is much less than this. Hence this type of insurance is clearly not a sinking fund.

Happy to differ in opinion, but what happens when your bike is stolen less than 10 years after you commence your '10% per year' personal sinking fund? You lose out. This doesn't occur with paid-for insurance.

[Reigncloud]

Don't forget that you then carry on paying the insurance premium - the cost over ten years is the same whether your bike is stolen on day 1 or day 36500

Yes, but the odds of having another bike stolen are no less either! You could get unlucky and have multiple bikes stolen in a year. Not likely, but possible.

[horizon]

The other point to make is that bike insurance is not necessarily '10%' of the cost of your bike each year anyway. If they go on the household insurance then the relative increase (typically less than £100) is far less than 10% per year, especially when you're covering multiple bikes within the one policy.

Yes, on this I agree you are right. My point really only applies to stand alone bike insurance and this is because bike theft is a peculiar loss - it is endemic and therefore difficult to insure against. However, looking at it from the insurance company's point of view, the same problem applies whether or not it is part of home insurance. My suspicion (and it is only that) is that they make adjustments such as reducing the ceiling for bikes lost away from home, increasing premiums subsequent to a claim etc. They have also perhaps in the house insurance calculated far more accurately their risk - are you the person who loses bikes and other things? My post was prompted by the oft heard complaint that bike insurance is very expensive - if it isn't then we can view it more as "insurance" and less as a sinking fund.

[Reigncloud]

My suspicion (and it is only that) is that they make adjustments such as reducing the ceiling for bikes lost away from home, increasing premiums subsequent to a claim etc. They have also perhaps in the house insurance calculated far more accurately their risk

Yes, I agree with this - insurance is a classic case of information imbalance. They have some very smart people analysing statistics and other patterns etc in order to improve their odds in their gamble that you will pay more over your life than they pay you for replacement of your bike(s). As with any gamble both sides are trying to 'win', but they know more about the nature of the game then you do. And let's not forget that you're naturally inclined to 'help' them by taking steps to prevent theft in the first place (good locks etc).

So yes, it's probably a mug's game, but it helps people sleep at night

[horizon]

I would argue that the loss of an expensive bike is a catastrophic event!

It's catastrophic for two reasons, one sentimental (which cannot be insured against) and the other financial. As regards the latter, a £3000 bike is at as much or more risk than a £500 one: the insurance cost rises accordingly and we are back at square one. My point is that the insurance companies view cycle theft not as a risk but as inevitability. Neither party therefore really gains from insurance.

[horizon]

And if you're half sensible it should also be an unlikely event.

Exactly. The insurance companies suffer the losses from careless people - stand alone insurance makes you pay for other people's stupidity, just as with travel insurance you are paying for other people's drunken nights out even if you are a churchgoing teetotaller. By "insuring" the bike yourself, you can benefit from your own carefully reduced risks.

[Reigncloud]

My point is that the insurance companies view cycle theft not as a risk but as inevitability. Neither party therefore really gains from insurance.

I submit the fact that you can buy bike specific insurance as evidence against this point No business is ever set up just to break even, they want to make a profit. Admittedly they mostly look to make a profit across their entire 'portfolio' of cutomers, and not necessarily within each customer, but the overall aim remains the same - profit. And they do make it - lots of it - so someone must be losing here!

[horizon]

So yes, it's probably a mug's game, but it helps people sleep at night

reigncloud: I think we're quits on this now!

[horizon]

My point is that the insurance companies view cycle theft not as a risk but as inevitability. Neither party therefore really gains from insurance.

I submit the fact that you can buy bike specific insurance as evidence against this point No business is ever set up just to break even, they want to make a profit. Admittedly they mostly look to make a profit across their entire 'portfolio' of cutomers, and not necessarily within each customer, but the overall aim remains the same - profit. And they do make it - lots of it - so someone must be losing here!

Well yes, the cycle owner. In one sense we all lose with all insurance because insurance companies make a profit. But that loss is small compared to the benefit. However with cycle insurance we lose more heavily because we are paying for what will happen but at a premium over our personally managed risks.

[Reigncloud]

. By "insuring" the bike yourself, you can benefit from your own carefully reduced risks.

Yes, but you can never reduce your risk to zero. At least with insurance the risk to your pocket is a relatively small (though non-zero) amount. I say non-zero because while I don't know what their formulas are for insuring you, I will admit that if you do ever have multiple bikes stolen in quick succession your premium may rise to a level that you wished you'd self-insured!

This is to say nothing of the risk to your sentimental value of course.

[Reigncloud]

reigncloud: I think we're quits on this now!

Yes happy to. No ill feeling of course - good lively debate!

[Mick F]

I will not be insuring my bike. I never have either, though it could be argued it's a possession and therefore covered by household insurance, but it's not specifically covered.

If it gets stolen, that's it. Gone, and so is my cycling enjoyment. This cannot be insured against. Money cannot bring my bike back.

I'm at a stage of life that if I wanted a new bike, I would buy one. Cost no object? Within reason, no. I could afford it. I don't want a new bike, I love the one I have, so it's irreplaceable.

Money is a pointless argument for me. Insurance companies can only deal in money, not real value.