Personal motor - Finding the key to motor

With many leading insurers making significant underwriting losses in 2007, much of the sector is suffering. Highway has been courted by LV= after a fall in pre-tax profits to £1.4m for the first half of 2008, down from £11.8m in the same period for 2007. It is scant wonder that many insurers are suffering: with highly competitive premiums, an average loss ratio of 100.4% in 2003 rose to 113.2% 2007, meaning that the average personal motor insurer was paying out £1.13 for every £1 premium accepted last year.

Mark Hallam, head of personal lines at Swinton, highlights: "The market goes through cycles of consolidation and, with the current non-favourable market conditions, insurers are looking to consolidate.

"Motor market consolidation is challenging for brokers with the potential removal of schemes and a reduction in the number of premiums that can be offered to the customer."

However, some brokers do not appear to be suffering to the same extent - profits for Swinton in 2007 were up 27% to £27.3m. "In getting quotes, brokers amass an enormous amount of data," says Doug Phelan, group development manager at KGM Motor Insurance. "This can be used to help cross-sell other products such as home and travel insurance."

Mike Smith, director at Provident Insurance, believes that a lot of motor insurers are suffering because they are relatively new players in this space: "Motor has always been a thin market. You can receive £6m claims for a single accident where an individual has died and everyone has to cover part of that cost in case it should happen to them." Neil Walker, motor manager at Allianz, agrees: "Motor is a hugely cyclical market; it comes with its ups and downs but we shall rise again."

Despite the competitive nature of the market lending itself towards bulk packages, the most suitable policies are highly tailored to the individual, believes Walker: "Policies depend on the insured's attitude to risk. Cover can range from accidental damage to cover for children's car seats and loss of keys." Excesses can be as varied as the policy dictates, with some insurers imposing involuntary excesses in an attempt to keep their premiums down, however the average excess stands at under £250.

Bespoke

Phelan believes that it is important to tailor the policy to the customer: "Given the competitiveness of the mainstream market, as well as improving on the overall service to policyholders, insurers have continually added various bells and whistles to comprehensive policies. This is so much so that KGM believes there are many policyholders with cover they don't really need - low-value cars with comprehensive cover, for example.

"KGM suspects that, for many, third-party or third-party, fire and theft would actually represent better value in these cases and so brokers have an opportunity to push this," Phelan concludes.

While price is undeniably the main driving factor, as can be seen by the focus of advertising on low rates, claims services also play an important role because they can ensure return business. "The acquisition of new business is becoming more expensive, so it is increasingly important to retain the business you have," says Hallam.

He continues: "Customers want claims to be dealt with efficiently and to be paid out quickly. We take out insurance so when we need it we receive the service we expect and, at a minimum, we have to fulfil their expectations. Our local branches really help, as customers come to speak to local teams about their issues, ensuring customers remember the service and return to us at renewal."

Changes in the patterns of advertising have helped level the playing field between direct insurers and brokers, the result of which Hallam notes: "The majority of marketing and advertising is now coming from price-comparison sites instead of direct insurers. This is beneficial for brokers that can place themselves on the comparison sites. Swinton is seeing a huge benefit, as we are quoting to an entirely new market that was not aware of the brand before. Customers taking out motor policies in this way are then serviced by the local branch, which will speak to the customer and be able to sell additional policies.

"Brokers on aggregator sites have as much chance of securing the business as direct insurers. Software houses are making it easier for smaller brokers to become involved," notes Walker. "Brokers can often have an advantage because they can present a range of offerings and so come up on every search."

The current market conditions also offer opportunities to the personal lines broker to sell the value of their advice. Phelan notes: "As the credit crunch bites harder, consumers are going to be looking more closely at their outgoings and motor insurance will be near the top of their list of potential savings: brokers should capitalise on this.

"They should push the value of the advice they offer, not just when buying insurance but also when it comes to making a claim. A lot of people probably make a claim for accidental damage, for example, when really they would probably do better not to and pay for the body shop repair work themselves rather than lose their no-claims discount."

Smith also believes that experienced personal lines brokers can offer valuable discounts on personal motor insurance policies: "Brokers can help make huge savings for their customers, as they know the risks of their customers a lot better. For example, they may know their client has spent a year on a scooter before passing their test and buying their first car. They know the road already from their scooter days, so they will be less of a risk."

Crime

However, the credit crunch also brings its problems, predominantly fraud and increasing claims for theft. As precious metals prices rise in tandem with these economic difficulties, there is an increasing amount of materials theft from the vehicles' exteriors. Catalytic converters are being stolen, most commonly from 4x4s. Not only are the converters worth around £150 in precious metals but considerable damage is also done to the bottom of the car because they are often simply ripped off by thieves.

Nikki Grieve, head of intelligence research and development at the Innovation Group, highlights in a recent report that fraud is on the rise: "If unemployment rises as suggested by movements in the market over the past week, it is very likely that we will see fraudulent insurance claims rise significantly." Mihir Pandya, fraud manager at Allianz, agrees: "We have seen a rise in motor thefts in our investigations team recently but it is too soon to see if it is the result of the credit crunch."

Worried response

Pandya warns: "There is always a rise in fraudulent claims as people become more financially constrained and desperate during economic difficulties. We expect to see a rise in the next 12 months but, right now, people are not as desperate as they might be. Christmas is always a trigger point, as people do not want to let down their families and so try to keep up appearances."

The Association of British Insurers reported that 24,000 frauds, with a total value of more than £260m, were uncovered last year, a 70% rise over three years. Pandya believes that brokers have an important role to play in combating fraud: "Basic checks can reveal potential fraud at the point of sale.

"Do not be too accommodating in taking business on. If a broker becomes associated with fraud and they are investigated, it can be too late because word will spread." To help raise awareness of fraud among brokers, Allianz has set up fraud sessions for their broker partners. Since launching the forums, the insurer has seen many instances in which a broker alerted them to an issue. "Brokers and insurers need to work as a team to look out for the genuine customer," Pandya advises.

Another problem faced by the current motor market is uninsured drivers. According to the Ministry of Transport, there are around two million uninsured drivers on UK roads that account for 160 deaths and 23,000 injuries in road traffic accidents every year. A survey conducted in August by Comparethemarket.com found that 68% of motorists involved in an accident with an uninsured driver had to incur liability and pay for it themselves or claim on their insurance, so jeopardising their no-claims bonus.

The British Insurance Brokers Association has been lobbying for a continuous insurance enforcement process, however Hallam believes that shorter-term policies are the answer: "Shorter-period policies could make insurance affordable for the uninsured and so help reduce the number of uninsured drivers on our roads. Insurers need to be more flexible than the typical twelve-month policies." Internet insurer Dayinsure.com is proof of the popularity of short-term policies in the UK, growing 87% between January and August 2008.

Hallam also believes that there is a future for pay-as-you-drive policies, despite the withdrawal of Norwich Union's offering in June: "Pay-as-you-drive policies are a great opportunity because people look for value for money in all areas of life and there are many that do not drive much." Walker disagrees, however, as he believes that the 'black box' in-vehicle recorders used by these policies mean that purchase of this sort of cover at any time in the near future is not likely to be prevalent: "The British public is not yet ready to carry a spy in the cab."

MINISTRY OF JUSTICE REFORMS, JULY 2008

In July this year, the government backed a streamlined process for the early notification of claims of between £1,000 and £10,000 for road traffic accidents:

- The small-claims limit will remain at £1,000.

- The fast-track limit will be increased to £25,000.

- Claims will be restricted to cases that incur claims of under £10,000.

- Insurers will have 15 days to respond regarding case liability.

- Employers' liability and public liability cases are not included in the new process.

THE ROAD SAFETY ACT (2006)

Implemented on 18 August, the new Act dictates that any motorist found to cause death by careless driving can be jailed for up to five years, a move that replaces the previous system under which a fine or penalty points were handed down. Neena Sharma, associate at Keoghs, told PB's sister publication, Post: "Insurers need to make sure that representation is there from day one because it very much depends on how cases are handled as to what the result is at the end of the day."