Something is Rotten in the State of Car Insurance

Consumers are enraged by the spiralling cost of cover, and critics regularly claim the industry is profiteering off the back of helpless motorists.

Recent results from Direct Line showed a 50% surge in profits and a huge dividend boost to shareholders. This was met by plaudits in the City, and by much wailing and gnashing of teeth from everyday consumers.

As one of the biggest players in motor insurance DirectLine is inevitably the lightning rod for consumer anger. But the picture is similar across the whole sector. Earlier this year the Association of British Insurers reported that average motor premiums rose by an eye-watering 9% last year — more than 3 times the rate of inflation. Insurers, not without good reason, blamed Government changes to the Ogden rate — the way compensation claims are calculated — for the rising premiums. The rise in insurance premiums were a reaction to the Ogden Tables, which were altered during the course of the year. But damage was already done, the rise in insurance costs, combined with the fact that the total paid out in claims was unchanged, left consumers feeling stung.

James Moore at The Independent told us that drivers are getting ‘kicked in the teeth’ by the insurance industry who are raising prices to line their pockets.

To be fair it has not always been so. In 2016 Direct Line, and many others, saw motor insurance profits slump. But whatever you make of these rollercoaster profits, the spiralling costs for consumers and the critical headlines, one thing is clear — traditional motor insurance has got a problem.

Part of its problem is its image, paying for compulsory insurance you hope never to have to claim is not the best starting point for a customer relationship. But a lack of competition, a lack of innovation and almost no engagement with the customer — except to announce this year’s higher premium — are all factors that the industry should be able to solve.

And we’re betting on InsurTech to provide the solutions.

First of all it strips out layers of costs, which alone will bring more competitive pricing to the insurance market. But this is only the most basic benefit that InsurTech promises. It’s not just cost. Far more important will be the transparency between the insurer and the driver and a chance to differentiate on more than just price.
Until now the mass insurance industry has not be able to get to know its customers in any detail let alone form a meaningful relationship, but the marriage of insurance with digital technology is now opening up ways to build a more meaningful relationship.

Take the notoriously high premiums for young male drivers. We know that statistically they have more accidents. But is that as precise as we can get? Detailed knowledge of the driver’s specific experience and behaviour through tech innovation such as IoT will allow insurers to make more precise assessments of their risk.

What about how much you drive? One of our portfolio companies, By Miles, just launched its ground-breaking policies which charge premiums based on how far you drive each month.

And what about some added value? Are there extra services that forward thinking insurers can offer, like advice on driving and car ownership, automatic reminders for servicing, guidance to approved mechanics or rewards for loyalty beyond just a no claims bonus. (Which incidentally many customers regard as a tacit threat rather than a benefit: “Don’t use your policy or we will charge you more!”)

All of these are benefits that InsurTech will, in time, provide.

The resentment felt by consumers at their rocketing premiums and, recently, at the perceived profiteering by insurance companies, shows that the old model of motor insurance is now too crude for the modern world and for the expectations of today’s consumers.

We think it is time for something a little more sophisticated.

If you have an innovative idea or product please get in touch.