The ABI Have a plan to deal with rocketing car insurance premiums which is great. It’s a subject that’s attracted a bit of industry comment too, so here are some thoughts from Manoj Pant, Senior Director and EMEA Insurance Industry Principal at Pega.
We are all aware that insurance premiums have risen, with inflation being a contributing factor. The increased costs can be attributed to labour and the supply chain, both of which have impacted claims expenses. However, I anticipate a decrease in these costs by the following year.
When examining the recent operating ratio for insurers, it is evident that they are not generating substantial profits despite premium increases of over 50% in some cases. One would expect such price increases to have a positive impact on profits; however, this is not the case for them. Surprisingly, for some insurers, their operating ratio has increased.
Naturally, the price increase is being closely monitored by regulators so it is not as simple as just raising the price; they must offer valid reasons to justify the increase to the regulators. However, there is an opportunity for insurers to use a hyper-personalisation approach to contextualise premiums and provide further transparency on how the premium is being calculated.
Hyper-personalisation can help tailor policies and premiums, which are currently segment-based, to the specific needs and characteristics of individual policyholders using advanced data analytics and AI technology. This allows insurers to analyse vast amounts of data about individuals, including their demographics, lifestyle, behaviour, and risk factors. By understanding each policyholder’s unique circumstances, insurers can offer premiums tailored to individual needs, eliminating unnecessary coverage, and thereby reducing overall premiums.
In addition to hyper-personalisation, insurers also have the chance to seize another opportunity that hasn’t been widely explored yet, which is pay-as-you-go insurance. Despite its lack of popularity, this type of insurance could gain traction, particularly with the rise of remote work and a decrease in drivers and commuters. Technology exists that can track the frequency of people’s driving habits to provide more accurate premiums and provide insight and feedback on driving behaviour to reduce accidents.
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