Motor underwriting is becoming increasingly competitive as standard insurers expand their criteria, some even viewing drink drivers as a good risk. John Jackson hitches a lift with the big players.
Despite the huge inroads made by direct writers into the personal car insurance market, the broker is still the kingpin when it comes to non-standard motor, where bespoke underwriting remains the rule despite the growing sophistication of screen trading.
However, it is a tough market, with specialist insurers such as Drake and Insurance GB having closed down, partly as a result of fierce competition.
As such, underwriting this class of business is not for the fainthearted, nor is it a market for the unwary broker, where specialist knowledge is a big plus for brokers when dealing with insurers.
Moreover, there is no agreed market definition of what is "non-standard" with motor insurance. What is seen as outside the normal underwriting parameters to one insurer, is regarded by another underwriter as a standard product.
Women drivers are a good example of this underwriting thought process, where specialist insurers take a more favourable view on the risk of females at the wheel than standard insurers.
One reason for this doubt about what constitutes non-standard is that standard motor insurers have been extending their underwriting criteria. Some, for example, see drink-driver convictions as better risks (assuming they have learned their lessons and will be more careful in future) than other insurers.
Sophisticated rate structures
A leading player in this specialist market is Groupama, which looks to the vehicle rather than the driver when considering what is non-standard. Groupama non-standard motor manager Chris Dixon says it also concentrates on a small number of specialist brokers for this business.
He has a criteria of three essential ingredients when underwriting. First, driving experience; second, whether the driver has owned similar vehicles before; third, vehicle security such as installation of tracking devices.
He adds: "We pick intermediary partners with experience in this area. This market is not necessarily screen-driven and the intermediary will have expertise and bring value to the market. If you come into this business and do it on screen when you do not fully understand the market, it will cause problems."
Dixon says currently Groupama has a panel of around 25 brokers and, even when they reach their peak, he expects that panel to consist of no more than 50 to 60. He describes these specialist intermediaries as "the first step in underwriting."
He adds some rates have increased in line with the hikes in standard motor and, in some cases, have been higher.
Dixon is also closely watching how Royal & Sunalliance (R&SA), which has taken over the Independent book of non-standard motor, gets on with this account.
Kevin Feeley, active underwriter for Crowe motor syndicate 953, has a relaxed view of the increase in writing non-standard motor through screen-based quotation systems.
He says: "Over recent years, a lot of non-standard motor has become rated on screen, and underwriters and rating structures have become more sophisticated to cope with risks such as multiple convictions and bad claims records. However, you are never going to take away the value of a broker speaking to an underwriter about a risk."
He says a broker who knows the risk can often find a much better rate, because the best way is to have it individually underwritten with terms to suit the client.
Feeley adds: "When we are talking about modified vehicles or occupations that have been of concern in the past, there are rates on screens and they are expensive. So here is an opportunity for the broker to play a major role in obtaining a reasonable rate."
Crowe has particularly set out its stool in the classic car market.
Feeley says: "Classic cars is a tight market, but historically quite profitable. For non-standard generally, premium rises have been largely a correction due to the rate increases in the standard market.
"Classic cars, indeed, the majority of the more specialist vehicles such as kit cars, have not heeded that knee-jerk, but we have had to put rates up a degree because we have had to clean up our underwriting and watch the claims inflation."
However, non-standard underwriter at new market player Chaucer Insurance, Alan Woodcock, says 80% of business is screen-driven, with 20% being bespoke.
Woodcock, a veteran in this market and former managing director of specialist insurer Sabre (now part of Norwich Union) says his product, Hi-Marque, is mostly non-comprehensive and 80% of the policyholders are under 40.
Woodcock says among its innovations is three-month cover for foreign visitors to the UK. The product also covers drivers with accident and conviction records and those with difficult occupations - such as footballers and actors.
He adds: "When Chaucer came into the market, brokers were delighted because it gave them more choice. I know of one broker who had a £2.6m non-standard account, of which £2m was with one carrier."
He says a crucial factor is that there is full disclosure from the insured and in this respect the role of the broker is crucial, "because they can bring added value".
For a high street intermediary chain such as Hill House Hammond (HHH), non-standard has been a good market, not least because it has a wide panel of insurers.
HHH marketing manager Alex Lovesay says insurers are more willing to listen and, as non-standard is a minority market, underwriters can cherry-pick.
She adds: "Over the past few years, insurers have become more sophisticated about identifying problem areas. They can be targeted in applying rate increases and decreases, to the benefit of the customer."
Lovesay quotes as an example someone given a nine-month ban for drink driving, rather than a 12-month suspension, because they were over the limit the following morning, or had undergone rehabilitation training or a driving course.
She adds: "If the court has considered them less of a risk, so might the underwriter."
Issues that underwriters believe will become more prominent are, for example, that Japanese imports such as cheap cabriolets are becoming more popular. Delays in getting parts can mean extended courtesy car provision, but if the vehicle has an Association of British Insurers (ABI) code, insurers can quote, which could lead to more business.
But Lovesay says that foreign-registered cars will be more difficult to place. EU law says they should be insured in the country of origin and insurers have generally followed that rule of thumb, but the screen-based systems have allowed the vehicle to be put on for a quotation.
However, last month saw the advent of the Motor Insurers Database of registration numbers, which will only recognise UK-registered vehicles. As such, it will throw foreign-registered vehicles back for referral to underwriters, making them "non-standard".
Lovesay says: "Location is also becoming more critical - for instance, underwriters might currently think twice about insuring a Mercedes driver without a no claims discount in central Bradford following the recent riots."
A factor that is slowly making an impact on the non-standard market is that insurers are becoming more lifestyle-orientated, and looking to provide bespoke quotations. This could mean offering third party as basic cover, with windscreen, fire, theft and continental use as options, building a policy based on individual requirements.
There is also a good deal of research available to underwriters to be able to underwrite women drivers as a non-standard category. French-owned MMA Insurance has this down to a fine art, with two products for women drivers - one aimed at younger women and the other at women driving the second family car. Each category has an entirely different underwriting profile.
Marketing manager at MMA, Dianne Smith, says: "Our Ladycar 2 product is for the second family car, but it must be of a lower grouping and have a lower mileage than the main family vehicle.
"Our Ladycar 1 product is for the younger female driver. Research shows younger women drivers are a better claims risk than their male counterparts. They are, for instance, better at hazard detection, tend to overtake less at speed or on bends and are generally more cautious behind the wheel."
For younger drivers, strenuous efforts have been made on the educational side - the aim being to make them better road users. One major scheme, Pass Plus, is backed by the government's Driving Standards Agency and has been endorsed by insurers.
Pass Plus aims to help young drivers by covering such areas as night driving and skills in using dual carriageways and, crucially, motorways, where speeding is a major problem. Often young drivers can obtain discounts on their premiums for taking the Pass Plus course.
Given the general premium hike, a report from consulting actuaries Tillinghast-Towers Perrin found that drivers aged between 17 and 24 had rate increases of around 50% between August 1999 and August 2000.
Despite the shrinking market of insurers, there is still a big market out there for intermediaries, especially if they see it as a niche area for growing their business. Providing good bespoke underwriting for these often quite difficult risks has other spin-offs, not least in the benefits of increased customer satisfaction from a job well done.
Actuaries suggest ways forward
The Institute of Actuaries, in its report "General Insurance and the Public Interest", suggests limiting the scope of cover for young drivers.
The report suggests excluding cover for more than one passenger under 25 in the car at any one time or a driving curfew to exclude cover between 10pm and 6am except in special circumstances (ie. shift workers).
The chairman of the institute working party that produced the report, Derek Newton, says: "In many ways, offering cover with more limited scope is preferable to high excesses, which young drivers can ill-afford in the event of a claim."
Another controversial suggestion from the Institute is that of a subsidised pool, where drivers unable to obtain cover could pay premiums to a fund set up by the government. It could, says the report, be an extension to the current work of the Policyholders' Protection Board or the Motor Insurance Bureau.
However, the institute accepts the pooled fund idea has disadvantages, such as the determination of eligibility, and whether it would be means tested.
Nevertheless, Newton believes these innovations need not be restricted to young drivers. More mature, better-risk motorists might appreciate the range of higher excesses so that, in effect, they self-insure for "normal" accident claims and just buy catastrophe cover.