The eco-friendly motorist is a growing phenomenon and, as Sarah Kennedy explains, many insurance providers are actively seeking ways to meet this new demand.
Can motor insurers make money by going green? Some companies are jumping on the environmental bandwagon, offering lower premiums for policyholders who offset their carbon emissions. Others insist there is no proof that such schemes provide any benefit to the industry, or even the environment.
Although the green movement within the UK motor insurance industry is worth less than an estimated £100m GWP, market experts predict an growth of interest as people become more environmentally conscious but also struggle to afford the new road tax bands announced in the last budget.
Will those more sceptical of the value of the eco-friendly insurance policy be forced to jump on the bandwagon, or will insurers offering green products discover there is little correlation between environmental consciousness and safe driving habits?
For BGL-owned insurer ibuyeco, it is fingers crossed that it turns out to be the former. It has founded an entire company on the promise of providing 100% carbon-neutral insurance. “The green agenda is beginning to have quite a significant impact on the motor insurance market,” insists ibuyeco’s director David Lundholm.
The idea began in 2006, when a group of BGL senior managers gathered with a brief to come up with the next big, innovative project. The result was ibuyeco. Less than a year later the product was presented to the market on World Environment Day.
“This was one of the most successful launches BGL has had a group,” says Lundholm. “The marketplace has become incredibly commoditised. Customers are looking for positive reasons to choose a brand.”
BGL designed ibuyeco with a specific customer profile in mind. Those interested in buying 100% carbon neutral car insurance would likely be older, educated and more affluent people with years of driving experience. It’s an attractive profile for an insurer because those same traits mean the policyholder is also likely to be a conscientious driver.
As such, ibuyeco claims it can provide demonstrably lower insurance prices — particularly for policyholders who drive hybrid cars. Recent independent research conducted by Comparethemarket.com backs the claim, showing 10% of consumers achieved savings of up to £204 on their renewal quotes with ibuyeco.
The company recently celebrated its first anniversary and says it has more than 60,000 policyholders and has offset more than 100,000 tons of carbon emissions, with the help of third-party partner, the Carbon Neutral Company.
Lundholm refuses to disclose ibuyeco’s current GWP — it is added in to the overall results of BGL group. He adds: “Few companies make money in year one but our objectives are being met.”
Further research from Comparethemarket shows that, aside from price, make and model of a car, for three quarters of motorists, fuel consumption is the biggest factor influencing purchasing decisions. Two-fifths are influenced by the new road tax bands. A third say they are concerned about the environment and would consider purchasing an eco-friendly car. However, a further 28% of cash-strapped motorists say they would purchase a green model, but simply because they are cheaper.
Ibuyeco is eager to capitalise on those looking to go green, regardless of the incentive, and says once they have the customers on board they will help them make decisions to reduce emissions and encourage them to consider environmentally friendlier cars in their next purchase.
“Any new motor product has to write enough volume to make it worthwhileâ€
Jack Brownhill, World Motor Insurance
“We are proud to call ourselves the market leader but we appreciate it will become more mainstream,” says Lundholm.
But Norwich Union disagrees. Brian Bridges, underwriting development manager at NU, argues that the environment has yet to have a significant impact on the motor insurance market. “There are a number of products developed by providers,” he says. “But interestingly, most of the time those products are not about the car you drive.”
Bridges says that the green initiatives have so far focused on carbon offsetting, offering to print all correspondence on recycled paper or to go entirely ‘ electronic to eliminate the paper trail. People might still, therefore, be driving gas-guzzling, emission-spewing vehicles with a clear conscience, believing their insurer’s carbon offsetting is making up for it, he says.
He questions the real benefit to the environment and to insurance companies themselves. “Auto Express did a recent road test on so-called eco-friendly cars and came to the conclusion that these cars are not as eco-friendly as you might think,” he says.
The Auto Express findings, released in May, criticised some of the leading fuel-efficient cars for pumping out 56% more carbon dioxide than the manufacturers claimed. The test zoned in on five hybrid cars and said one in particular performed so badly its environmental claims were dismissed.
The levels of carbon dioxide emissions are key, because they are used to determine tax bands. For example, a vehicle with a C02 figure below 100g/km qualifies for a free Band A tax disc. Band B cars emit up to 120g/km and pay only £35 annual vehicle excise duty a year. Band G vehicles, which emit more than 225g/km pay up to £400 a year.
Bridges also questions the logic in offering premium discounts to drivers of hybrid vehicles. “Until the time that we have accurate data that says people who drive these cars are a better risk, it would be hard for us to give a big discount,” he says. “These vehicles can be more expensive and more expensive to fix.”
With hybrid vehicles making up less than 2% of the motor market in the UK, Bridges argues that the insurance industry might have difficulties profiting from the green agenda.
“Any new motor product has to write enough volume to make it worthwhile.”
Jack Brownhill, of the World Motor Insurance Consultancy, also questions the profitability for insurers offering green products. “There’s been a lot of drum banging but I think it’s more of a marketing thing at the moment,” he says.
Regardless of whether the individual schemes of insurers will have an impact on the environment, Andrew Davis, managing director of the Environmental Transport Association, says the industry has a key role to play in gathering data and influencing the government.
“The insurance industry is very important because they have the actuarial expertise. They have the hard numbers,” he says. “Good government is evidence based. Some environmentalists tend to over-egg the problem. They say the world is going to end. But the world isn’t going to end. In the next 100 years, insurers are going to play a big part in ensuring the government modifies its policies.”
ibuyecos carbon offsetting how it works
Carbon dioxide emissions are calculated using guidelines from several key groups and bodies, including the Department for Environment, Food and Rural Affairs. Using this method, the typical family car with a mileage of between 10km and 12km would require an offset of about 20 pounds. With the help of its third-party partner the Carbon Neutral Company, measures are taken, such as tree planting, to offset those emissions.
Prior to ibuyecos product, policyholders looking to offset their own carbon emissions would have to try and calculate their own emissions a time-consuming and sometimes costly procedure. Then they would have to find a third party that could assist in the offsetting.
ibuyeco calculates the required offsetting at the time a policy is taken out, depending on the make, model and age of a vehicle. The cost of the offsetting is factored into the price of the policy. Policies connected to hybrid or more fuel-efficient vehicles will be cheaper than those that will require more carbon offsetting.