Daily briefing: Wednesday - From macro to micro

The second coming of the telematics revolution is clearly gathering speed, judging by the announcement from the Co-operative that it will hand out cash rewards for safe, younger drivers.

The vast majority (88%) of customers for the Co-op’s Young Driver Insurance product will receive an average of £102 cashback payment.

The Co-op’s announcement follows news earlier this week that Young Marmalade has been able to use the technology to cut its average premiums by 17%.

By using telematics technology, both the young driver specialist and the Co-op are able to monitor their customers’ driving behaviour.

The heartening news from the Co-op is that the vast majority of the customers who have taken out the Young Driver Insurance product drive safely and within the speed limit, offering a corrective to stereotypes to the contrary.

The Co-op’s motivations probably differ slightly from that of many other insurers. It remains a mutually owned organisation with links to the Labour Party. Therefore, anything that smacks of penalising a marginalised group, in which camp so many young people sit these days, fits uneasily with the group’s ethical roots.

But the Co-op’s move looks like canny business sense too. By pressing ahead with the introduction of the ‘smartbox’ technology, the Co-op has stolen a march on many of its bigger rivals in the younger driver market, who are still pondering its cost-effectiveness. And if there is any customer loyalty in the motor insurance market these days, the Co-op will have earnt valuable brownie points with a group who will make up a big chunk of tomorrow’s market.

Aviva’s abortive introduction of telematics in the late Noughties represented a false dawn for telematics tin the insurance market. But this time round, the Co-op’s cashback initiative can only hasten the trend towards the more widespread application of the technology.

The Merkel-Sarkozy action plan

The EU debt crisis deal hammered out yesterday between France and Germany could have profound implications for insurers operating across the continent. Chancellor Merkel and president Sarkozy reaffirmed their commitment to a eurozone-wide common rate of corporation tax as part of a wider package of measures to buttress the beleaguered single currency.

A harmonised rate of corporation tax will make particularly unhappy reading for the Irish government, which has used a lower corporation tax to help lure insurance companies to its shores. On the other hand, the UK’s ability as a non-eurozone country to set its own rate of corporation tax would reinforce London’s credentials as the base for an international insurance business.

Much needs to happen before the Merkel-Sarkozy plan is adopted, but the direction of travel is clear.

Another blow for the high street

From the macro to the micro, bad news comes from South Wales where Motaquote has announced the closure of seven branches.

Explaining this move, a spokesman for the CCV-owned broker cited increasing numbers of customers moved online and the economic downturn, both of which have depressed revenues.

The branches Motaquote have shut are concentrated in the South Wales Valleys, which contain some of the country’s most concentrated pockets of unemployment. It is hardly surprising then that towns that have borne the brunt of successive recessions, like Neath, no longer offer sufficient opportunities.

But it’s not all bad news on the high street. A-Plan is continuing to open branches in its relatively prosperous southern English heartland. Higos clearly sees a future for face-to-face insurance advice, judging by its ongoing acquisition drive across the South West.

Times are tough, but it’s not game over for the high street broker.

Premium Credit sale does nothing for market competition

And finally, yesterday we broke the news that Premium Credit is due to be snapped up by a private equity investor. The company, one of two dominant players in the premium finance market, is being sold as part of a wider offloading of non-core assets by the Bank of America.

But the sale will do nothing on its own to ease the lack of competition in the provision of premium finance, which has left two companies controlling nearly all of the market. Brokers desperately need a bigger choice of suppliers, but the highly leveraged nature of premium credit means they are unlikely to get it as long as current tight credit conditions persist.