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Customer Profile Comparison Brings Perspective To Pricing Rules


Customer Profile Comparison Brings Perspective To Pricing Rules

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As the general insurance market adjusts to the new pricing regulations1, understanding the nuances in customer age profiles, retention levels and risks for each market segment – direct insurers, intermediated insurers, large brokers, small brokers – could build a picture of how each corner of the market is being impacted. This type of benchmarking can also be useful as a measure for the market’s progress in meeting the FCA’s desired outcomes.

Let’s start with age. Based on our analysis2, the age of the average person buying motor insurance in the UK is 50, but for customers of direct insurers the average age drops to 45 and those customers of independent regional brokers are even younger at 43.

Making the assumption that it is only the older generation who appreciate the personal touch when it comes to customer service, is clearly not correct, especially when we learn that those customers who buy their car insurance through an intermediated insurer are on average 55 years old.

Age is an important factor in a customer profile because it not only helps with accurate risk assessment but because it also helps to build a picture of the individual at different life stages – an important consideration when it comes to delivering fair value to consumers.

When it comes to switching, just 22 percent of direct insurer customers switched their motor policy at renewal compared to 53 percent of the customers of small brokers. Putting those statistics into context, we found the average switching rate across all the segments’ motor insurance books is 32 percent3.

So, we know customers of direct insurers tend to be younger than the average and are less inclined to switch. They also have the lowest rate of cancellations for the whole of the market4. However, direct insurers underwrite more ‘named drivers’. 65 percent of their motor books of business have named drivers on a policy compared to 48 percent for smaller brokers5. This intelligence is valuable because it heightens the importance of identity checks and data enrichment of named drivers at the same level as the main proposer.

Perhaps most of interest is that based on a sample of 500k policyholders across all segments who have stayed with the same insurance provider for more than five years, 1 in 4 individuals on average has not shopped around for cover during this time6. Identifying and assessing these individuals to the same level as new business customers will be a key priority for insurance providers, to help ensure they have appropriate cover at a price that the FCA would regard as fair.

That process can start with creating a holistic view of existing customers using a unique identifier such as LexID® that connects existing customer data to provide a single customer view. This helps insurance providers leverage all data they already hold on the individual, wherever it is within their business – marketing, underwriting and claims. They can then use this unique identifier as the basis for enriching the data further.

Quote behaviour data can also be used to help insurance providers determine the appropriate cover for a customer at a price that is fair by identifying when there has been a change between related quotes in aggregate and at what point the customer is shopping in relation to their policy renewal date. Quote behaviour data could also support the regulatory reporting requirements by providing known information on customers’ shopping history.

This valuable type of insurance-specific data insight is already accessible to the market via the LexisNexis® Informed Quotes platform. This provides a single access point to a wide range of data for risk assessment at individual, asset, household and postcode level with intelligence delivered on all individuals associated with a quote.

As pricing strategies have changed, data enrichment strategies for renewals are changing too. Attaining the single customer view and then applying data enrichment to the renewal process through platforms such as LexisNexis® Informed Quotes can help evolve the risk assessment process for both new business and renewals. This enables insurance providers to make faster and more informed decisions while ensuring customers are priced fairly and offered the products that are appropriate to their needs.

When insurance providers understand insurance shopping trends and behaviours, they have an opportunity to address retention and offer a better customer experience.

©2017 Decisive Moment Event Photojournalism, Lexis Nexis

Martyn Mathews | Senior Director of Personal and Commercial Lines | LexisNexis Risk Solutions

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  2. LexisNexis Risk Solutions Internal Analysis.
  3. LexisNexis Risk Solutions Internal Analysis.
  4. LexisNexis Risk Solutions Internal Analysis.
  5. LexisNexis Risk Solutions Internal Analysis.
  6. LexisNexis Risk Solutions Internal Analysis.