Motor Insurance: Driving the Power of Data

While discussing the effects from the Ogden rate change, our Manchester cohort focused on a wide range of issues within the motor insurance space, such as the further increase of digitalisation of processes within the industry and what effect this has across a business, plus, how data, analytics, and technology, can further be utilised to improve interactions and services within motor.

If we turn back the clock to 2017, without warning, the Lord Chancellor changed the rate from 2.5% to -0.75%, a decision which caused great surprise and upheaval. “We have seen three rate changes since 2017,” exclaimed Trevor Lloyd-Jones, “and recently, the reports are indicating a rise in premiums again; what does the table think about that?” “It is probably not going to be a surprise,” announced Calum McPhail, “that Zurich, like every other insurer in the UK market, was disappointed with the announcement of the rate at -0.25%.” Expanding on McPhail’s comment, in recent months it has become clear that insurers have been frustrated with the Lord Chancellor’s suggestion that the change would lead to savings for insurers, especially as an added and unnecessary burden is placed onto the industry with inevitable increased costs adding up. As uncertainty hovers over their heads, the insurers around the table made it clear that they are trying to work with the changes and adapt as best they can. “There a number of advantages from investing in technology,” explained McPhail, “and we are also encouraging better rehabilitation in order to get claimants back to the best position possible.” Paul Baxter offered a slightly different perspective as an insurance broker; while fully understanding the issues insurers now face, Baxter believes the “quick and unpredicted swings” from the government are the real issue. “This has to come down to whether we are paying claimants fairly enough. We need to work with the government to have a better avenue for communication so that everyone is aware of the process; if a more transparent solution is to come and the discount rate works out as we hope it will, then perfect, because we will all be able to make much more accurate assessments going forward, but until then, we need a clearer and balanced relationship.” The word ‘uncertainty’ was banded between many of the panellists as the conversation continued, and was stated as “the single biggest factor in the industry” by Chris Collings. As Britain seeps further into this category of ‘uncertainty’, especially with a general election facing us next month and Brexit on everyone’s lips, it seems we could be in for further surprise and upheaval as 2020 approaches.

If we are going to maintain a competitive advantage, good relationships with our insurance partners and our customers, then we need to use data better – Paul Baxter, Marmalade Insurance

AI is not the answer to everything in the foreseeable future. It is never going to be one size fits all – Calum McPhail, Zurich Insurance plc

Rising claim costs

Our next topic on the agenda was the significant increase in injury claim costs, which has been accompanied by the upward spiral of motor damage claims inflation, plus the rise of repair bills. “With one of the main reasons being the rising cost of technology in today’s vehicles, what are the options for using RPA and AI innovations to drive costs down?” asked Lloyd-Jones. Baxter agreed and stated that vehicle technology should be driving down claim frequencies, however, as Collings pointed out, there is a “widening sea between those who are prepared to invest in technology and those who can’t;” MGAs and SMEs being an example.
The black-box debate came into question, with the group giving the consensus that there is a much higher societal expectation for young people to be driving their own cars and allowing insurers access to their data via a black box, but only if it is stated that the data collected benefits the policyholder. It seems that telematics will be the way forward as it works towards reducing costs via claims intervention.

Steve White commented on the upward spiral of motor damage claims, introducing a couple of macro issues that appear to be silently brewing. One being Brexit and the availability of parts and labour, and the second being the US and China trade war, which will potentially impact on parts. McPhail acknowledged that while costs have gone up, it is something that needs to be addressed with the manufacturer and reflected in the ratings in terms of overall repair costs. “As we move forward and technology moves faster and faster, we need some kind of guarantee from manufacturers around sustainability; they need to not change the technology too much, otherwise in five years’ time when you come to sell your car, the technology could become redundant because it can’t be replaced.” The manufacturers will want to bring the repair into their own ecosystem, and the table agreed that manufacturers will be looking at new ways of driving income and forcing insurance repairs to be done through franchised dealers in order to recover some costs.

Demonstrating value

How might the motor insurance market use data and analytics better to find and build loyalty while demonstrating value? “Our business is all about how you use the data, what you do with it and how you communicate to your customers,” explained Baxter. “For us, one of the most important things is how we communicate with young drivers. We find that if we talk about their safety rather than their insurance then the tone of the conversation changes and they are more willing to work with us and see the value in our service offering.” Martyn Mathews agreed and said that we need to “turn insurance from being a grudge purchase into a valuable service. It goes beyond just paying premiums, it is a service that you can count on when the worst happens.”

The consumer is data savvy, and once insurers can embrace that, they will start to thrive – Martyn Mathews, LexisNexis Risk Solutions

The discussion forced the question of ownership and whether we see the value of ownership changing in young people. Collings suggested that insurance will become a lifestyle choice, with the continuous urbanisation of the younger generation playing a factor, coupled with the realisation that not all of us need a car as much as we used to, and that the notions such as car-sharing and car clubs encourage that change in mentality too. Personalisation seems to be the key for a lot of insurers now, but as White observed, at a more macro level, there is a real danger of insurers using individual pricing and running the risk of creating pools of uninsured or uninsurable people, potentially causing political consequences, which we need to be mindful of.

The table’s final thoughts turned to technology and how we should be using technology to enhance the customer offering. “We are in the middle of an ARMS technology race,” said Collings, “if we are able to use data with the right technology then we can give consumers what they want”. “The consumer is data-savvy,” explained Mathews, “and once insurers can embrace that, they will start to thrive.”