The insurance industry needs to keep abreast with changes in technology and recognise its benefits
Technology is moving at a pace that threatens to overwhelm the insurance industry. Its benefits are clear, however.
Until recently, a broker might require several days to send a quote to a potential customer. The broker would be waiting for a letter or an email and, if this were to arrive after office hours, comparing prices would be delayed even further.
However, the big software houses, such as West Yorkshire-based SSP, East Sussex’s Insurecom and London’s Acturis, provide prices in real time, which enables brokers to obtain hundreds of quotes at the click of a mouse.
SSP launched its system in February, and its software uses The Cloud, the wireless network that belongs to BSkyB.
Prices are updated instantly. This means that the cost of the policy that a broker selects is accurate, and not days out of date, which might have a significant bearing on which cover is chosen. About 1,100 brokers use this technology to obtain four million quotes every day from what SSP divisional director of distribution Richard Crocker describes as a “centralised quotes hub that ensures certainty of rating” (see Q&A).
These software houses also help the industry to combat fraud. For example, in the case of customers misrepresenting themselves, only lengthy checks can show that the person they claim to be is, say, dead. The software facilitates quick links to third parties, such as Experian and Lexis Nexis, that can check the names and details of people against insurance companies’ own databases. These will also allow for a quick credit check, claims history and vehicle registration.
Up to standard
Polaris UK plays a key role in these developments. Owned by the general insurance industry, the developer and maintainer of insurance processing standards in the intermediary - mostly online - marketplace, traces its history back to 1997, when Logica UK was appointed to implement Productwriter, a software that made it easier for insurers to trade online. Its shareholders include insurers AXA and Groupama and brokers Aon and Towergate.
One of the key aims of Polaris is to develop indistry standards. For example, in 2011, it took part in developing common standards in marine insurance and motor trade products.
By enforcing certain commonality between the industry’s IT programs, the various pieces of technology can better communicate with each other. This makes data sharing quicker, reduces the need for human intervention and should reduce the costs to the parties involved in any given transaction.
Most importantly, it provides insurers and brokers with a framework that helps them understand the fast-moving technology they use and will prevent them from becoming overwhelmed by the complexity of the systems and data that reaches them.
However, one issue that arises with regard to standards is that they implicitly impose rules that many technology-based companies feel limit their flexibility, thus potentially ruining the innovations that enable them to make the margins required to prosper and invest in further advancements.
Two emerging sectors
A debate is currently raging over the introduction of standards in telematics - the little black boxes in cars that have enabled young motorists reduce their car insurance premiums by proving that not all young men are prone to high-speed crashes - and price comparison sites.
Polaris is keen to reshape these emerging sectors by introducing standards as soon as possible.
Advocates claim that standards will help protect customers, but opponents argue that telematics players will lose their commercial edge as a result.
Polaris is aiming to have its first set of telematics standards ready by the end of the year. The ABI has set up its own committee to help establish such standards, but the telematics industry is divided over what these should be or whether they should even exist.
One of the key areas of contention is renewals. At the end of a period of cover, a driver might want to change carriers. By being able to transfer the driving history held in the fixed box, the customer could obtain a cheaper price from another provider.
Polaris wants to set a benchmark so that all telematics boxes record driving history in the same way, irrespective of which company owns and runs them.
However, with different systems, data (be it history of speed, braking or location) cannot be easily transferred. Further, the telematics companies regard it as their property and as tool to help them enhance their offers to customers.
Put simply, if rivals cannot easily access that data, they will be unable to offer a cheaper price than the driver’s existing company, and the driver may therefore be tied to that insurer ad infinitum.
Andrew Linnell, who heads Edinburgh-based Hansen Young Consulting and who has carried out research for Polaris, says: “You can’t have integrated systems [across the industry] without working to common standards. Unless brokers grab the importance of integrated trading in the next two-to-three years they will find themselves at a disadvantage in the marketplace, they will struggle on retentions and they will find it increasingly difficult to compete in the marketplace.”
The debate is around who owns the driving data: the customer or the telematics company”
Chris Moseley, Insurecom
The telematics companies dispute this viewpoint.
Insurethebox boss Mike Brockman (see The debate) argues that the standards have not been properly defined, thus making them worthless. Ingenie chairman Steve Broughton has contended that the proposal will merely promote “one-way transfers”, since those offering rival quotes will have the advantage of obtaining the data that the incumbent company has spent money to record. Metaskil managing director Ian Faulkner believes that the industry is too young for such a framework.
The government disagrees on the last point. The industry is growing at a fierce pace. By 2015, it is predicted that there will be about 2.15 million active telematics policies in the UK, which represents about 8% of the motor market.
Former transport secretary Justine Greening encouraged the development of telematics-based products to help reward young motorists who drive safely with cheaper premiums, and concerns have emerged that the Office of Fair Trading might intervene if the industry fails to come up with voluntary standards.
The government also seems keen on customers owning their own data. In a recent consultation document, consumer minister Norman Lamb said: “Technology has allowed businesses to understand their customers’ needs and buying patterns to an unprecedented degree. At the moment, consumers are at a disadvantage because the vast majority of them do not have the ability to use that same data to help their own decisions.”
Chris Moseley, chief commercial officer at software provider Insurecom, says that the argument for telematics standards is “gathering momentum” and expects an agreement “sooner rather than later”. He argues: “The debate is around who owns that driving data: the customer or the telematics company. I think if you were the driver, you would assume that you own the data and that when it came time for renewal you could shop around.”
With price comparison sites, the argument is focused on question sets. Different sites ask different questions or nuance them in order to better tailor their service and findings for that customer. By having, say, their own occupation lists, they can find a policy that better suits a senior marketing manager than an office worker, therefore giving them a competitive advantage over less sophisticated rivals.
An ABI spokesman explains that the body “does not think standards are necessary” for aggregators, but it would like to see “elements of a code” that would ensure the customer does not get any nasty surprises. For example, excess should be disclosed.
Polaris sales and account manager Philip Nunn concedes that imposing standards on aggregators could slow down their service with additional questions. This is vitally important to price comparison sites, as the key to their success is speed of service, as well as ensuring sufficient space for on-screen advertising.
However, Nunn points out that absurdities may occur without some governing rules. “I’m ‘Philip Nunn’, but if a site allows me to enter my name as ‘P. Nunn’, then it might be hard to check my record for things like criminal convictions. The questions might ask: ‘Who is the main driver?’ It’s not clear whether that means someone who uses the car 50%, 60% or 80% of the time. ‘Do you live near a floodplain?’ The customer might wonder how near is near. We have standards to help the end consumer.
“I look at this as being like an English dictionary. If we all decided to make up … words, then we wouldn’t be able to speak to each other and, like the English language, standards will evolve [with developments in the market].”
New rules to be introduced under the Consumer Insurance (Disclosure and Representations) Act 2012 will also place a greater emphasis on insurers and brokers obtaining information through questions, thus enabling customers to make claims even if their answers led to a misrepresentation. With this emphasis of accuracy passed on to the industry, it might be wise to have more commonality between a variety of issues, including question sets, to ensure that insurers are not faced with a raft of claims.
Power to the people
All these arguments might soon be moot, however. The EU is taking an increasing interest in these issues and might legislate, at least in respect of common standards in telematics.
Indeed, Europe is already set to radically alter the telematics industry through the Gender Directive, which will remove considerations of gender from pricing and benefits of policies from December. This will result in more telematics boxes being sold, as more safe women drivers try to reduce their premiums.
Further, if telematics box sales start to become as prevalent as the usage of price comparison sites, even fierce opponents of standards may have to admit defeat. Ultimately, such a large number of consumers will find a single, loud voice that will demand they own their own histories.
Talking points …
● Will the telematics industry ever come to a consensus over common standards?
● How will legislation, including the Gender Directive, affect future innovation in this sector?
● Are common standards a step too far for the fiercely competitive price comparison sites?
To see a graphic of advanced personal lines e-trading works, click here.
To see a graphic of how the telematics technology works and its potential, click here.
To see the telematics common standards timeline, click here.
Examples of third-party checking
Insurers and brokers use ID checking software to ensure that customers are genuine and that they are not lying to obtain lower premiums. It is generally done at the quotation stage or just before the sale, and often cross-references the electoral roll. The most basic ID check will confirm age, date of birth and address.
Insurers can use the claims and underwriting exchange database to check motor, household and personal injury claims. Lexis Nexis associate account director Dan Cicchetti says this is normally done after insurance is sold, as the quality of claims data on the database can be poor, making checking at application stage more difficult.
Insurers may ask for consumers to disclose unspent criminal convictions at the application stage, but will typically check at only the claims stage. This is routine if fraud is suspected, and is often done by asking the claimant to submit a Criminal Records Bureau check.
Credit card checking
Insurance firms can check credit cards to ensure the user and the card are genuine. Firms such as Experian and Equifax can do this for a fee, but some companies have built their own systems. For example, MCE’s in-house software screens out foreign credit card numbers, as many insurance fraudsters rely on stolen cards.
Driving licence number
Insurers do not carry out regular checks of driving licence numbers, but this will become common at the quotation stage when the industry is allowed easy access to the DVLA database in 2014. Thanks to licence details checks, insurers will know how many driving convictions their customers have.
Public credit data enable insurers to check a customer’s address and how long they have lived there, as well as revealing bankruptcies, individual voluntary arrangements and county court judgments. Cicchetti says that insurer loss ratios have “significantly improved” by using recently enhanced credit scores on their customers.