Barry's blog: men not machines

It’s been a while since I was hands-on in the domestic motor insurance field. But scratch the surface and you’ll find I’m an insurance broker through and through, so I do keep an interested eye on all classes of business. And this blog is on the thorny subject of private motor insurance.

Now, I recognise that times have changed – the ubiquitous computer rules all our lives and motor insurance is no exception. But still, it seems to be that there are some basic principles of insurance that are being ignored in the interests of attracting potential customers who are trying to reduce their insurance costs. We’re living in a world where the machine is the underwriter and everyone has to fit a fairly simple algorithm. Woe betide anyone with unusual insurance characteristics.

I read in the insurance media recently that one aggregator has revealed a “disturbing non-disclosure rate” of 12% on web-based proposals and this in the over-40s sector. If the number of ‘tabs’ is reduced to enable a very quick user-friendly quotation system, then there is clearly necessary information missing and too much emphasis being placed on generic declarations and tick boxes; driving licence details, claims history, vehicle modification, ‘fronting’ for young drivers, and even occupation are, apparently, the areas where deception or fraud is prevalent.

Of course, we have to realise that there are significant rewards to be gained by simply buying and selling customer data. And data-mining has nothing to do with risk or claims ratios or fraud! One aggregator boasts they provided eight million quotations in a year. But the insurers pick up the tab (please excuse the pun in this context) when they accept risks from these sources. Underwriting seems to have gone out of the window in the interests of bean-counting.

Interestingly, the aggregator with the 12% non-disclosure problem is now auditing licence information and seeking physical proof of no-claim-discount entitlement (just what the real insurance broker has been doing for years).

The sheer impersonality of the internet encourages the user to skip over the relevance of many pieces of information to underwriters, whereas when face-to-face with a broker it is more difficult to avoid such issues.

And now we’re to have electronic insurance certificates. Time will tell whether there’ll be tears before bedtime.

I read somewhere else that insurers need a 20-30% uplift in rates to balance the books, with operating ratios reaching 120%, and yet mainstream insurers are offering clever discounts of 16.66% (that’s two months’ free cover). It just doesn’t stack up, does it?

The same insurer that claims it needs a 20% minimum uplift is also the same insurer that offers ‘to beat any renewal quote’.

And when it comes to clever marketing gimmicks (such as 12 months for the price of 10) displayed on our TV screens – read the small print and you realise this can, and will, be withdrawn when it suits the company. And you can bet those same insurers are involved in buying and selling data.

So what is the real motive? There seems to be more emphasis, nowadays, on getting and less on retaining customers. We all know, across the range of products, that acquisition cost is significantly more than the cost of renewing, let alone the loyal customer tending to be a better risk too.

My guess is that business from insurance brokers has better loss ratios (and probably lower acquisition cost to the carrier) albeit lower volumes per outlet. And what about the reinsurers? Where are they in allowing their direct insurer clients to haemorrhage in this market?

I’d be interested in others’ opinions on these issues.

Barry Fehler is a director of IIB, chairman of Broker Direct and deputy chairman of South Essex Insurance Brokers.