Daily briefing: Wednesday - Too much information?

Thanks to technological advances, insurers have access to ever-increasingly granular information – a vast treasure trove, leading to continual improvements in the judgment of risks.

But, as City minister Mark Hoban pointed out in a lecture yesterday, this information bonanza also poses reputational risks for the industry.

Many customers will be fortunate enough to live in low-risk areas, with the associated benefits on their premium levels. But many others will be disgruntled when they are priced out on the back of their neighbours’ misfortunes or downright fraud.

This ability to differentiate will inevitably lead to a widening gulf in rates. The links between poverty and criminality means that this trend will be felt most acutely by those living in the poorest neighbourhoods.

In a recent speech, ABI director-general Otto Thoresen pointed out that while the past two years have seen rapid rises in motor insurance rates, the average price of such products is 26% down over the last 10 years. But, of course, consumers will be a lot more alarmed by rapid increases, little appreciating the bargain they may have been receiving for years on end.

But better pinpointing of data means that the impact of these rises is being felt most acutely in particular parts of the country.  

A quick roll call of the MPs who have raised concerns about the cost of motor insurance shows the kind of areas where this issue is being felt most acutely

Take David Ward the Lib Dem MP, who prepared a report on the cost of motor insurance last year. His constituency in Bradford has seen the biggest rise in the cost of motor insurance throughout the whole of the UK. A higher-profile example is ex-justice secretary Jack Straw, whose Blackburn constituency has become a hotbed of ‘cash for crash’ fraud, prompting his campaign to ban postcode pricing.

There’s no turning back the tide of technological progress. And as technological tools become more sophisticated, it will become easier to mitigate the relatively blunt tool of postcode pricing.

But in the meantime, as the minister warned, technological advances could make life more uncomfortable for insurance companies.

Good news for RSA

Simon Lee’s feet are only just under the table after taking over as RSA group chief executive from Andy Haste at the end of last year.

RSA had some bad headlines last year, most notably those stemming from the damning court judgment on its controversial subrogation repair arrangements.

But this morning’s note from Jefferies will be a welcome late Christmas present for Lee.

The stockbroker’s insurance industry analyst James Shuck has carried out an analysis of RSA’s FSA returns and has identified £363m worth of redundant reserves across the company.

While Shuck says the motor reserves look “modestly deficient”, the note finds that the situation is manageable due to RSA having raised rates much earlier than the bulk of its competitors .

Shuck also forecasts that RSA’s accident year combined ratio will improve from 100% in 2010 to 97% by 2013. Added to that, RSA is not exposed to the peripheral Eurozone economies and it doesn’t have a life arm, meaning that Solvency II won’t be as big a headache as it will be for its composite rivals.  

All in all, RSA looks like it has a solid platform on which to build during 2012.