The Actuary magazine featured a fascinating report recently on how car insurance is changing. It doesn’t sound like a promising read – car insurance is something that most people buy as a legal necessity – but there are several changes taking place in the world today that are having a serious effect on the insurance market.
Think for a moment about the variables that actuaries apply to a regular car insurance policy, your address, whether the car is garaged at night, the value of the car, the make of car, the age and gender of the main driver. These are factors that have caused endless discussions through the years as friends compare insurance costs. The opaque nature of these multiple variables means that it is often difficult to compare products from different companies and additional factors, like your chosen excess, can dramatically impact the price paid.
The customer journey has also become increasingly disjointed too. Customers often complain that their insurance company automatically increases the premium yet if they call posing as a new customer it is dramatically cheaper – why is there no bonus for loyalty is a common cry uttered by car insurance customers.
But car insurance as we know it could be about to change. In fact, there are some insurers that are already experimenting with innovations that I believe will become mainstream in the next few years.
It is a fact that some 19 year olds are careful drivers, yet a teenager cannot tick a box on their insurance application saying “I vouch that I am a careful driver” – it is taken for granted thanks to the law of averages that teenagers drive more recklessly than more experienced drivers. Under the current system it is almost normal for a driver to pay the same insurance premium whether they drive 1,000 miles a year or 100,000.
All these strange anomalies can be addressed by the use of telematics. This is the addition of a “black box” in the car that monitors where, when, and how the car is being driven. Some drivers might not like the sound of being monitored in this way, but feeding this information back to your insurance company in real time can have some distinct benefits for the customer:
- Careful drivers can prove they are careful regardless of age
- Infrequent drivers can prove that they rarely drive
- Drivers can prove that they are not using their car commercially – spending evenings earning extra with Uber for example
Insurance companies can use this data to price the premium more precisely for customers and the only customer who might be penalised by this increased supervision are those who should be paying higher premiums.
But moving beyond telematics there is the rise of the self-driving car. If the experimental vehicles now being tested by companies including Google, Tesla, Daimler, and Apple are on the road by the early 2020s then this will create another dramatic shift in the way we buy insurance. If you can guarantee that your car drives itself 80% of the time and you only take over infrequently then will the insurance companies offer a big discount?
Both these changes are going to completely shake up the way that car insurance is sold in the next 5 years. Insurance is mandatory in the UK so it cannot be avoided, but the customer experience around buying car insurance is going to be very different as we enter the next decade.
What did 1000 car insurance customers say about their current provider’s customer experience?
Click here to view our league tables to find out who came in the top and bottom 10 now.