In a recent survey by the Association of British Insurers (ABI) average car insurance premiums have risen by 11% in the past year alone, taking the average annual policy to £484. This is the fastest year-on-year rise since records began five years ago.
Perhaps this is indicative of the fact that everything seems to be getting more expensive. But I don’t think it needs to be that way for the car insurance industry. There is now enough technology available that can help reduce the risk of a crash or a claim, it baffles me that car insurance firms have been slow to adapt. Yes, some are starting to offer discounts to customers, but it’s certainly not yet the norm.
Just today the CEO of Aviva, Mark Wilson, has labelled the car insurance market as ‘dysfunctional’ saying ‘it does not reward loyal customers’. Aviva only have 2% of the car insurance market but are developing a suite of products which will be launched before the end of the year to help reward loyal customers. I think Wilson’s comment stems from the challenge car insurance companies face. They want to attract new customers, and to do this they offer low and cheap introductory rates. However, when that customer comes to renew the following year, the premium rockets. Typically, these introduction rates need to be subsidised, so standard premiums get increased for loyal customers even if they haven’t made a claim.
So what can technology do to help bring down customer premiums? I believe there are three key areas which will re-define how insurers assess premiums over the next few years. Some are already in the early stages, but my prediction is that that these will become mainstream in the next five years.
Often referred to as black box technology, telematics can help insurance providers create bespoke premiums based on actual driving behaviour. The small device or mobile phone app monitors how the car is being driven. It can measure various risk factors including car type, driving experience, age of the driver, average speed driven, braking and what times of day the car is used.
For young or newly-qualified drivers who are considered high risk it can save on average over £1,000 a year (based on quotes generated by USwitch – Nov 2016-Jan 2017).
At the moment, devices are typically fitted retrospectively, but manufacturers could start to add during the production process in the future.
These have gained popularity over the past few years as they have become cheaper and more widely available. They are simple to use, easily mounted on the dashboard and record every journey. Because they can easily record speeds and road conditions leading up to accidents, they can play a crucial role in assessing driver fault.
These simple devices can also help with insurance fraud scams. ‘Crash for Cash’ has seen organised groups deliberately causing accidents for personal gain, which has cost the insurance industry an estimated £1billion annually.
Many mainstream insurance providers have now started to give automatic discounts to drivers with dashboard cameras.
Driverless cars and autonomous features are not yet mainstream, but will arguably disrupt the market the most over time. This technology will overhaul how insurers access risk. With around 90% of all car accidents caused by human error, these technologies will reduce incidence of risk. However, it clearly will take time for manufacturers and insurers to determine how they manage this lower risk and who will potentially take the responsibility in the case of an accident.
However, over half of new cars already have autonomous features such as automatic braking and parking assistance, so we might start to see a reduction in premiums long before driverless cars become ubiquitous.
Of course, each of these will pose opportunities and threats for manufacturers, insurers and drivers as more and more data is created. Who will own the data and what is done with it is probably a debate for another day.