Motorists seek new type of cover as cost and hybrid working change driving habits

UK drivers are becoming keener to adopt pay-as-you-go insurance policies as the cost of living crisis continues to squeeze spending, according to a new white paper by data analytics and technology provider LexisNexis Risk Solutions, published today (28 February 2023).

The white paper - entitled Flexible, favourable, practical, profitable: Uncover consumer perceptions of non-annualised policies (NAPs) and their growing value in the motor insurance market – is based on interviews with 2,018 UK consumers aged 18 and over with a UK driving licence.

The interviews were conducted between April and May 2022 in conjunction with market research firm Consumer Intelligence.

The report aimed to quantify the awareness and appetite for new types of temporary, short-term and pay-as-you-go motor insurance policies.

It found that one in three purchasers of motor insurance would be interested in buying a NAP in the next 12 months, with pay-as-you-go policies having the most appeal. The white paper found that 5.4 million UK motorists have used at least one NAP product during the last two years.

“While it might sometimes feel like a very settled market, motor insurance is changing as consumers’ needs change,” the report stated.

“A combination of the social and economic effects of the Covid-19 pandemic, inflationary forces and increased public concern about the environment are altering the way many UK consumers use their cars. One consequence of these changes is growing interest in non-annualised policies for motor insurance.”

Growing product awareness

The white paper added that other notable reasons for a move towards NAPs include significantly reduced annual mileage by UK drivers, which may be the result of work or lifestyle changes or could be motivated by factors such as the cost of living.

The most commonly cited reason for using a NAP, according to the report, is because of borrowing someone else’s car (38%). Other reasons for their use include a need for additional flexibility or policyholders using their car less.

The paper added NAP users are more likely to be younger, have higher incomes, have children in their households and live in metropolitan areas. They are also more likely to adopt new technology quickly.

“It seems likely that NAPs will be more widely used during the next few years,” the white paper said.

“Yet at present, there is little data available across the industry about how consumers are using the different types of NAPs, about who those consumers are and about the effectiveness of current application processes.

“Our research shows that overall usage of NAPs is still relatively low – about 15% of consumers are using or have used one or more NAP at some point during the past two years. This still represents approximately 5.4 million motorists.

“Furthermore, awareness of NAPs is high - just as more consumers may find they have insurance requirements that one of these products could meet. More than seven out of 10 consumers (71%) are familiar with NAPs for motor insurance.

“A further 22% have heard of these policies, so in total, more than nine out of 10 consumers are aware of them.”

Leading the market

Speaking on the white paper findings, Andrew Ponter, insurance product manager for UK and Ireland at LexisNexis Risk Solutions, said: “Consumers want choice and flexibility – perhaps now more than ever as household budgets are squeezed.

“People are also thinking differently about their car use and the associated costs from an environmental perspective. NAPs for motor insurance can help consumers protect themselves when car sharing, car swapping, [or] for temporary use, so that cover is in place for the time when and if insurance is needed.

“Our research has been driven by the insurance market’s appetite for greater insights around a NAP data enrichment solution. We are working with insurance providers to explore how shared data on NAPs could be used to refine the design, risk assessment and distribution of these solutions to benefit consumers and insurance providers alike.”

The white paper added that insurers that were willing to embrace the use of NAPs will gain a significant first mover advantage.

“Our research suggests that motor insurance providers able to access and exploit additional data and insights about the way these products are used will be able to grasp a valuable opportunity, becoming leaders in this part of the motor insurance market,” it concluded.