Plus, the FCA’s general insurance pricing reform has encouraged brokers to use data enrichment at renewal to ensure prices are ‘accurate’ says Europe MD
The insurance industry could be entering a “renaissance period” for “launching new products and consumers actually being ready for them” following the Covid-19 pandemic and the corresponding increased demand for usage-based motor insurance policies, said Jeffrey Skelton, managing director for Europe at LexisNexis Risk Solutions.
Speaking on how the use of data has been impacted by the pandemic, Skelton explained that data “disappeared” from the young driver telematics market because this demographic were unable to take their theory or practical tests during the coronavirus lockdown.
In turn, this meant they couldn’t purchase vehicles and start their driving careers, meaning telematics data has dipped.
A further data black hole arose from the fact that “there have been fewer claims [and] fewer crashes [during lockdown], so the amount of data that big insurance companies have been able to collect on that front has gone down drastically”.
However, a “consequence” of these trends – according to Skelton – is that “you’re going to see consumers asking, and fairly asking the question: if I’m not driving as much, should I be paying as much?”
He continued: “The industry has an opportunity here to take a deeper look at data and ask themselves is now the time to offer new products? Products that are based on people’s driving behaviour and [the] actual number of miles driven.
“The old way of just saying well I’m going to drive an average of 12,000 miles a year and that gets rolled into the rate calculation, I think consumers are going to start asking the question – well, what if I’m only driving three? Shouldn’t my rates be different? And assuming it’s a safe 3,000 miles and not a reckless 3,000 miles.
“Now is going to be a great time and we’ve been doing work with some insurance companies to better understand what the data looks like, what they might be able to do.
“They’re going to have to come up with programmes, pilot them, test them, but I think consumer attitudes will be such now that they’ll be ready for a product that is more based upon their actual usage of the vehicle.
“It could be a renaissance period for the industry to think about launching new products and consumers actually being ready for them.”
Brokers undertaking data exploration
Skelton added that brokers are also getting more heavily involved in data enrichment to play “a very important part of the whole ecosystem”.
He explained: “There’s more discovery taking place around deploying data enrichment, not only at the point of sale on quotes, but also on renewals and the role that the broker plays in all of that as well. I think brokers are obviously a very important part of the whole ecosystem.
“We’re at an interesting point in that journey from a data exploration perspective, with brokers in particular.”
For Skelton, the role of data is even more pertinent considering the FCA’s general insurance pricing reform, which aims to eliminate price walking practices that see new and returning customers offered different premium prices.
“It fits in very nicely with the FCA guidance because [it is] asking the industry to take a harder look at making sure there’s price equity across business, whether it’s new or renewal, [to] try to make sure that there’s not just automatic rate increases taking place in the back end,” he said.
“That’s forced insurance companies to take a closer look at how they’re using data enrichment on the renewal business because there will be opportunities to refine that price and make sure that the pricing that you’re giving out is accurate and is data-driven, which is great.”
A key part of this process, therefore, is brokers using data enrichment when “a block of their business comes up for renewal”, Skelton noted.
The FCA reform has also “renewed the interest in making sure that [brokers have] a consistent process on the use of data for enrichment,” he added.