Insurers are already facing difficulties with real-time, online pricing – now the US market presents another challenge

Four simple pieces of data – that is all some US motor insurers need to be able to deliver a quote. Once customers have given their name, date of birth, ZIP code and driving licence number, insurers can then retrieve all of the other necessary information through third-party sources and rate the business.

This approach immediately puts insurers in control. There is very little scope for customers to manipulate their profile and massage a better rate out of online quote engines by changing their particulars. Equally it helps to combat more malicious attempts at fraud by giving criminals less room in which to manoeuvre.

The key to making this approach work is the relationships that insurers have with third-party data providers and the access they allow to their information.

A future model

In the UK, a lot of work is already being done in this area and insurers are working to validate and enrich the basic data that customers provide. But there is still a lot to do before insurers can operate effectively from only four pieces of information.

Whether we are talking about integrating with the Claims Underwriting Exchange, credit referencing agencies or eventually driving licence data, UK insurers really need to be sure that the information they have on customers is correct.

If insurers can take confidence in the information they have on each customer, they can then begin to rate those customers accurately and effectively. This is imperative in such a fast-moving and competitive market, where any mistake in pricing is very costly.

Make no mistake

Mistakes will either lead to an immediate drop in volumes if insurers become uncompetitive, or it can see them overrun with business if pricing is overly generous. This issue is then compounded by many insurers’ reliance on hard media to communicate their rates to their intermediaries.

This model is no longer viable and insurers really need to be pricing in real time if they are to compete in an increasingly dynamic market and adapt their own products and rates to suit.

The intermediary channel still accounts for over 30% of motor business in the UK, equating to over £3bn of gross written premium, so there is an incredible amount at stake.

This is something that the whole market must now move towards as there is a growing awareness that without such improvements, it will remain very difficult for intermediary insurers in the UK to operate profitably.

Everybody wins

This new approach is already gaining traction with a number of insurers and it is going to have an impact across the market. By moving in this way, these leading insurers will be able to better select and approve the business they actually want.

In turn, this will reduce the pool of good risks that the rest of the market is fighting for and many carriers will face the prospect of having to take on customers that others have rejected. From this standpoint, it will be very difficult for them to repair their combined operating ratios and compete on a sustainable basis into the future.

The market has changed dramatically in the last 25 years and the advent of the internet and price comparison sites in particular has created an entirely new landscape in which to quote, bind and service customers.

We are now moving into a new stage of development where real time pricing, robust validation and effective data enrichment will allow insurers to take back control of the risks they underwrite and the rates they offer – if they choose to take it.

Jonathan Davey is managing director of Keychoice.  

Twitter: @Daveyj6607