Some straight talking from the Editor’s keyboard on the car insurance market. It’s time to scrap the 1990s binary choice of Third Party Fire & Theft vs Fully Comp, because this is the 21st century.
SOME 1990S MARKET FACTS
Decades ago people mostly owned their cars, vans and motorcycles. Yes, some signed up for Hire Purchase at 40% APR, but they still saw themselves as owners, not just Keepers of vehicles. It was much the same with vans and motorcycles, people owned them, rather than leased them.
In terms of numbers 1990 saw about 21 million cars, 2 million vans and 1.2 million motorcycles and scooters on UK roads. We now have about 40 million vehicles registered at the DVLA in all those classes. Despite this increase, plus an extra 10 million people arriving in the UK, accidents have gone down substantially. Some 5,217 people were killed in 1990, compared to 1695 in 2022, a testament to car construction, ADAS and other safety features, plus a reduction in overall speeds in urban areas – which is where most collisions occur.
In terms of vehicle value vs wages, cars now are about the same – at least on petrol/diesel cars. In 1990 a new BMW 3 Series convertible with the budget 2.0 litre engine was just over £15,000 on the road. That was a year’s wages for a skilled worker, or middling public sector employee. Today a Diversity Officer in the NHS earns about £40,000 starting salary and a new BMW 3 Series starts at £39,600. Same value of the vehicle then, as regards write-offs from an insurer point of view. Of course electric cars more expensive, with a prestige EV costing from £55,000 to £90,000. They weren’t invesnted back in 1990.
The other thing that wasn’t invented was ther internet, which means people had to walk into an insurance brokers, on a High Street, or phone up for cover. Hundreds of thousands people were employed in this industry, quoting, form-filling, filing paperwork, answering letters – yes actual letters written in handwriting. All gone.
AN ON-DEMAND CAR MARKET
OK, fast forward and we have claims inflation today as the car market has evolved. One specialist told IE recently that costs per claim on average had risen by X4 since the pandemic, yep quadrupled. Why?
Takes longer to get anything done; labour costs up, parts supply patchy, more bodyshop time checking sensors and automated systems now on many modern cars. Plus writing off Range Rovers and EVs costs big money per unit. Why are there so many Range Rovers being stolen, or EVs/Hybrids being banged up in big cities? Simple really, people realised they could lease a lifestyle vehicle, rather than borrow on their meagre salary to own a used Vauxhall Astra. The younger risk-takers living at home with their parents until their 30s have gained access to flash motors. They don’t pay rent, so they put that £700pcm rent money towards a Tesla or BMW iX.
NON-BINARY, FLUID FUTURE
No, this isn’t a re-run of the Trans vs Terf debate raging on X. But there’s no doubt the old two product choice which underpins the car insurance market is as dated as furry dice on a Fiat Panda 4X4.
For starters, many people think that Fully Comprehensive means “all risks.” Do a survey, ask the public and that is what you’ll find. People think everything is covered; a commute to work, a side hustle selling Roman Candles and rockets near New Year, or carrying four passengers to a festival campsite in the Netherlands on Uni hols.
As many car leaseholders have discovered recently, when your car is submerged at a dealership it isn’t always the case than the main dealer’s policy covers total loss of customer cars, just accidental damage whilst actually being repaired or transported. So you have to claim and no, TPF&T doesn’t cover a flood damage scenario, at home or at a dealer showroom.
As an industry we are not great at explaining the finer points of polcy schedules, the actual detail of WHAT IS COVERED.
THE SOLUTION: BASIC LIABILITY WITH STACKER MENUS
Part of the solution is new legislation. If everyone knew that TP Liability cover meant that other cars, drivers, pets, cyclists, e-scooter riders, pedestrians or private property was covered as a bare minimum, in ALL circumstances, then the understanding of what you were buying would be universal. The law abiding majority would know that their asset itself was NOT covered, only other people and that would concentrate minds at the wheel.
Then everything else can be sold on top as a Netflix style subscription: vehicle value, PI, legal, breakdown, business, commuting etc. Stack it, quote it, sell it using apps and chatbots online. The industry would launch this new Legal Minimum TP Liability product on a reverse value model, so the older the car – and therefore less valuable – the higher the monthly premium.
Things like missing an MoT by a month would mean auto cancellation and the Council can then take your car. Insurers have to work with politicians on this, or uninsured driving will never be cured. Political minds need to be concentrated on new ways of targeting the risky, no-docs, bald tyres, no insurance drivers. The new TP Liability Insurance legislation may require things like benefits deductions, deportations, debanking or other asset seizures for repeat offenders, since the jails are full and crushing low value cars isn’t working as a deterrent.
Explain the new TP Liability risk and societal reward as it’s launched. Owning a low value car on TP only means drivers don’t feel they have much to lose, except personal injury and this is the problem everyone is trying to solve. The selfishness of main character syndrome which permeates modern society underpins uninsured driving. TP Liability is all about Be Kind, think of others not yourself, do the right thing for the common good – politicians love all that stuff, so the industry needs to lobby on that basis.
LEASE CARS
So in the affordable future, GAP insurance, plus actual asset value, legal costs and loss of earnings cover due to injury, will be sold as a legal condition of signing a car lease agreement. That way renting a car becomes more expensive, so it acts a nudge to people who like flash cars to start saving money and buy one instead.
Older drivers can buy from a menu of per mile providers, so a low mileage lifestyle means pay-per-mile, with holiday trips, or passenger PI risks added by phone call, or a simple yes/no button menu on an app.
Classic fans can choose laid-up, Project, Summer Only, or one-off trip cover for shows and events. Nobody drives a 1960s Morris 1300 every day, so why would they need Fully Comp? A 6 month policy that covers road use April-September, with 6 months laid-up TPF&T by default is something that actually fits 80% of the classic owners lifestyles.
Family drivers can customise commuter/delivery options, for one or more drivers. You could have a night-time urban policy too, sold for those who wish to drive in towns and cities after 8pm. That sorts out many of the grey fleet delivery operatives, who want to earn extra money at weekends, incept via app like the Zego courier product, cancel after midnight if your shift is over.
It’s something that parents would value when ferrying older children around late at night for their safety too.
DRIVING DATA BEATS NCD ON PRICING, EVERY TIME
In short, the industry needs to offer options that cover individual aspects of use, cover flexible needs rather than sell an either/or option.
In the long run, despite some initial moaning that the new “stacker” sytem is too complicated, the net result will be a customisable car/van/bike insurance market, where the majority buy the cover – and the vehicle – they can actually afford. Sharing data via telematics, smartphone location services, plus manufacturer service and recalls etc adds layers of data that didn’t exist in the 90s, so insurers have a truly in-depth understanding of lifestyle, usage, location, parking, average speed, braking etc.
An NCD is another 90s piece of marketing which needs to be swept away by cross-referencing data. What your life was like ten years ago, your address, financial or job circumstances etc is irrelevant to today’s risks. What matters is asset value, driving style, servicing and repair, risky parking locations, mileage and so on.
By understanding individual data per driver, the actual pricing can change in real time, on a variety of risks. That is the future. That premium fluidity, offering affordable cover options for those who reward insurers with accurate data, is ultimately a much fairer system. Demanding archaic job titles, age, gender, or postcodes and overlayering the number of attempted vehicle thefts per postcodes, is something that belongs in the Museum of Insurance, along with job menus like Chicken Chaser or Parachute Packer.
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