Where’s the Insurance against the outcome of the General Election?

‘Cracking down on car insurance’ is a powerful message for a political party looking to secure its residency at No.10. It’s also one that'll resonate with consumers who feel they are being treated unfairly, and struggling with the cost of living. But is it a good strategy??

This is a complex problem with many moving parts. Many of which aren't in the insurer’s control.

Brexit, the pandemic, the war in Ukraine, and instability in the Middle East have all contributed to price inflation. The cost of energy, labour, and parts are a real issue in most sectors, and insurance is no different.?

There are many more factors besides. The challenge of repairability due to struggling, inadequate garage networks, and a shortage in relevant skills, especially in the EV domain. The general rising car population. The shift back to the car as public transport has failed us with strikes and dramatically rising costs. Rising crime in key areas and so on are all contributory factors at play.

Simply calling in the regulators won’t resolve this problem. Insurance companies aren’t lying about the outcome of inflation and generally rising costs. As it stands, car insurance looks mostly unviable, with ratios battering some of the largest and most scaled car insurers.

Simply calling in the regulators won’t resolve this problem. Insurance companies aren’t lying about the outcome of inflation and generally rising costs. As it stands, car insurance looks mostly unviable, with ratios battering some of the largest and most scaled car insurers.There’s also good evidence insurers aren’t passing on all of the costs, with some suggesting more rises are needed to balance the books and sustain these important businesses.

The call for both the FCA and the Competition and Markets Authority jointly to probe is interesting. Especially given the dramatic efforts the FCA has already made with The Consumer Duty to create a more fair and customer-centric insurance sector.?

Perhaps Louise Haigh needs to be far more aware or involved in this process? It may well provide the basis for making sure insurers are treating customers fairly in their pricing. Two birds and one existing stone.

However, caution is needed. Best intentions can and do have unintended and adverse consequences. The original price fairness moves with the GIPP that largely aimed to suppress overly reduced acquisition pricing and high hikes at renewal, have also impacted competitive pricing options for insurers. It’s flattened their pricing strategies and exposed higher premiums overall.?

The data on this isn’t conclusive, but certainly switching options based on pricing alone are far less appealing than they used to be.

It's true that some insurers have begun to see profits bounce back. Admiral, the UK’s biggest motor insurer, made almost ￡443million last year. Up 23% on the previous 12 months. It’d be easy to accuse the company of unfairly boosting premiums, but that'd be simplistic.?

Firstly, the profit isn’t just from car insurance. Secondly, they exited 380,000 “sub prime” customers. This may have worked in the short-term, but I don’t see it as a sustainable strategy for the UK car insurance industry.?

A healthy book of business has always been a factor in pooling insurance benefits. But this doesn’t get insurers off the hook. They're largely driven by antiquated business models that are verticalised and silo’d by policy, and very inefficient in places. They haven’t embraced the post-industrialisation models other industries have had to.?(see Lisa Wardlaw going at this in her podcast series)

Transformation has a more profound potential impact on insurers than simply digital communications, reducing the costs of serving customers. It creates better-connected and more efficient repair networks. It optimises fraud detection, which still has ￡2bn of undetected fraud impacting premiums in the UK. It creates the opportunity to process highly complex insurance cases using artificial intelligence.?

This could dramatically reduce claims inflation, and insurers do need to do more in this regard.

That said, I think working closer with the government is key. I’m confident that a more symbiotic relationship between the sector and government would expose the wealth of data and insights insurers have. This could lead to better road systems, car manufacturing standards, improved repair networks, and skill development in mechanics and other areas.

Insurers need to be far more adaptive now. Offering tiered products, providing more options, and greater flexible products, like usage-based. Additionally, insurers need to better communicate the value of car insurance.

In addition, insurers can look to manage their value chains far better with more intelligent and data-led ecosystems. Partnering more effectively with the supply chain can create huge improvements in efficiencies, improving experiences, outcomes, and costs.

There's a lot to go at. This can't be a General Election gimmick, and any ill-thought-through heavy-handed action won't help anyone. It certainly won't unlock the potential for collaborative progression.