The following is an opinion piece written by Keith Binley, LexisNexis Risk Solutions, MD of UK and Ireland, Insurance
In a move that has been widely condemned by the insurance sector, on March 20, 2017, the Ogden discount rate changed from 2.5% to minus 0.75% piling added pressure on insurers’ claims costs with premium rises for millions of customers. An urgent consultation on how the rate is set has now begun, but, already, ratings for the financial performance of the market have been impacted negatively and consumers are starting to see the rate change reflected in their premiums.
They say that necessity is the mother of invention. Insurers, under extreme cost pressure right now with the double whammy impact of the change to the Ogden rate and IPT to rise again in June, will doubtless be examining every aspect of their operations to identify where efficiencies can be made without losing focus on the customer.
While Ogden impacts personal injury claims regardless of their cause, it is motor insurance where the change is expected to be hardest felt. It’s little wonder that attitudes to motoring and mobility are changing giving rise to on demand and car sharing propositions. The basic affordability of motor insurance is really in question, particularly for the young. Indeed, in a recent Parliamentary debate, the Government ruled out the removal of IPT on telematics products and said that the only way insurance costs would come down is if accident rates were reduced and technology must play a role in this. The Government has stressed the need to ‘de-risk’ driving and incentivise safe driving.
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Also, while cars are getting safer, this is not yet reflected in road safety records. In fact the number of people killed or seriously injured in road traffic accidents increased by 6% in the latest government figures and although tech is making cars safer it also means they are getting more expensive to repair and this further impacts claims loss ratios.
But if there can be one good outcome to these challenging market conditions it will be that the sector really starts to leverage data assets to understand individual risks, segment customers and deliver more tailored, valued propositions. It may also prompt the industry to put more focus on helping customers understand the role their data will increasingly play in delivering products relevant to their risk, particularly in light of General Data Protection Regulations (GDPR) from May, 2018. There’s an important education job to be done.
Essentially, if you have a better picture of your customer at every touch point, you make better decisions. It’s therefore critical that the sector does as much as it can to exert some control over claims costs, by gaining a clearer view of their customers, particularly at point of quote and underwriting, using a combination of policy, contributory and public data.
The good news is that the industry is just starting to grasp that the insights into an individual’s risk that can be gained through data analytics and technology can really enable them to make smart decisions at speed. For example, the link between motor policy history and loss cost is now more clearly understood. Then add to the mix the insights gained through telematics policies which now offer the possibility to better predict future claims losses based on current driving behaviour.
Data alone won’t help address some of the challenges the industry is facing, but data in combination with analytics will. Insurers and brokers shouldn’t wait until the competition leapfrogs ahead to be leveraging these types of datasets and tools to make the right decisions for their customers and their businesses.
The preceding article was an opinion piece written by Keith Binley, LexisNexis Risk Solutions, MD of UK and Ireland, Insurance. It does not necessarily reflect the views of Insurance Business.
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