Independent broker blog: High time for a hike

So that’s it then. Underwriters can no longer use “gender” as a rating factor following an EU ruling. Where will it all end up?

Hot on the heels of the “gender” announcement, the UK government was quick to point out that insurance would remain exempt from age discrimination rulings. I wonder how long it will be before the EU decides to over-rule this too?

What next, a ban on postcode ratings? One standard vehicle rate? No discrimination against those with accidents claims or convictions? I suppose it would save insurers actuary costs – every cloud has a silver lining!

Remember the banking crisis?

This news has coincided with the current press frenzy concerning the rising costs of motor insurance, particularly for younger drivers, and the report published by the transport select committee on claims referral fees.

At the risk of sounding cynical, I would suggest to the government that it would be better placed to investigate insurance premiums at a time when they are too low rather than too high and that, while costs to insurers have undoubtedly increased due to the claim and compensation culture, a contributory factor is also getting the wrong risk at the wrong price!

I’m no financial whizz kid but even I know that you can’t carry on selling £1 for 80p forever without it effecting the bottom line.

Perhaps I just don’t understand the pricing model of these larger direct writers. They are currently very aggressive with their pricing and, as I said in this column a few months ago, the biggest threat to our motor book during 2011.

We’ve seen quotes form them that are 50% or even 75% cheaper than the market rate and offers of 25% “cash back”! Why isn’t the government investigating this? If memory serves, the results of the banks' efforts to “stack it high, sell it cheap” were none to clever either!

Not always price, price, price

I understand the need for additional revenue streams – insurance companies can no longer rely on investments propping up underwriting losses and brokers cannot live on the insurance commission alone. I don’t mind if we can't offer “cheap” insurance. I happen to think that we are worth that little bit extra, even if some clients do like to debate this very fact when phoning to discuss renewal terms at 10 o’clock on a Sunday evening!

Clearly we can't have one rate for motor insurance in the UK, but sensible pricing for all would go some way to reducing the hard-soft cycle that the actuaries tend to roll out annually at various insurance conferences.

A healthy insurance market needs multiple forms of distribution, and I believe that there is enough out there to “feed” everyone. Those that buy online are not interested in what the broker has to offer – it's price, price, price. However, there are those that want the reassurance of talking through their needs with a trained professional. What we must do is educate the insurance-buying public that not all insurance policies and associated services are the same.

Following the EU gender ruling, we were inundated with calls from both female policy-holders worried about price hikes and young male drivers, assuming a level playing field would entitle them to a discount. With the same amount of publicity, uninsured drivers and claim referral fees never even generate so much as a text!

Low motives

Let's face it, we all like the higher premiums and everyone connected with motor insurance has been saying that prices need to increase for as long as I can remember. Now that we’ve got movement in the right direction, albeit perhaps a little too high in some instances, the government sees an opportunity to win support among the masses and cries “foul”.

On the subject of misguided and mistimed intervention, while sitting at home on my sofa watching TV on a Sunday night debating the value of my service with my client over the phone, at least I feel secure that my FSCS fees are being put to good use when I see my screen fill with an advertisement encouraging consumers to claim compensation!

Peter Smits is managing director of Ashbourne Insurance.