United Kingdom


  • Industry: Financial Services, Insurance
  • Type: Business and industry issue
  • Date: 16/07/2013

Motor insurance, turning challenge into opportunity 

Murray Raisbeck considers possible strategies for overcoming the fundamental challenges that currently face motor insurers, from overcapacity to a distrustful customer-base.

What can insurers do to address mutual mistrust?

Fundamentally, the relationship between motor insurance companies and their policyholders is one of mutual mistrust. The public believes that insurance companies exist simply to make money; many policyholders appear to have zero moral issue with inflating their claims. At the same time, motor insurers are beset with fraudulent claims perpetuated by organised crime . As a result, application and claims costs have risen to a point that has inflated premiums for policyholders and eroded returns for insurers.


Motor insurance is the ultimate grudge purchase. What’s more, the public’s enthusiastic take-up of price-comparison websites has had the effect of eroding brand loyalty. Although brand still plays a part in terms of consumer confidence, few consumers make their choice solely based on brand. These days the majority buy on price and frequently change their underwriter.


This lack of trust on both sides is unsustainable. Motor insurers need to act if they are to re-set the insurer-policyholder relationship. Both parties need new ways of engaging with their market – through better product design, by revisiting what their brands stand for, by engaging with policyholders more effectively and perhaps learning lessons from the micro-insurance model used in developing countries, whereby all parties understand that it is the trustworthiness of the community that underpins insurance arrangements. Insurers need to build up a more credible exchange between themselves and their customer base – one that rewards policyholders for not claiming in a more substantive way than the traditional no claims bonus.

With the wide range of third-party claims handlers, legal firms and repair shops, the motor insurance supply-chain is overcomplicated, fragmented and burdened by over-capacity. Is this sustainable?

The motor insurance sector struggles with an anomaly. In a functional market over-capacity tends to drive prices down. However the opposite appears to be the case in the motor claims management industry, where claims inflation continues to rise, particularly when bodily injury claims are involved.


Insurers have experienced inflated costs across the board in recent years. This is partly because ‘at fault’ insurers have little control over the costs of the claim, and they are the ones ultimately footing the bill. It is also a result of the claims cycle being extremely complex with multiple parties be involved. In order to survive, each component of the claims cycle needs to make a margin. Given the number of ‘hand offs’ a claim passes through, with a margin being added at each stage the costs soon add up. Insurers have not helped themselves either, as the practice of receiving referral fees for passing non-fault claims onto businesses in the claims cycle also contributed to a rise in claims costs.


To date any attempts to contain this through legislation have failed. When legislation has put pressure on one part of the balloon, it has not shrunk the balloon; rather it has created a bulge elsewhere. Having said that, there are a number of regulatory and legislative interventions currently in train which, anecdotally, insurers are expressing more confidence in. In particular there is a belief that the measures being introduced by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) will be more successful in reducing claims costs than previous measures


For claims costs to reduce further, or to at least halt claims inflation, there will also need to be a market response. A number of businesses in the claims cycle may no longer have the scale to make a margin out of revised cost structures, or the ability to manage the compliance challenges that are being posed by the regulatory changes. Therefore, we could be entering a period of consolidation, or further vertical integration within the claims industry. This should lead to rationalisation of the number of businesses in the claims cycle, a corresponding reduction in claim costs and a potential improvement in the quality of service provided.

"Motor insurers have a lot to gain from harnessing the potential of Big Data. What do you believe is holding them back?"

The lack of a clear single information management strategy. At present Big Data is a ‘mega trend’ that Boards have a 50,000 ft view of. Few have considered granular second and third order effects. Firms should have a single information management strategy that includes the ability to manage and benefit from all data, be it, low/high volume, structured, unstructured, external or internal. Purely focussing on a Big Data strategy would dilute the benefits.


Legacy systems are often used as an excuse for not being able to use internal data effectively. Contrary to the view that firm’s need to spend money on transformation of legacy systems, a great deal of work can be done without impacting legacy systems, for example, the majority of spend in Finance Transformation has been on systems (such as data warehouses) that are downstream of the core legacy systems.


However, the key challenge when it comes to getting the most out of Big Data is having the appropriate business insight to leverage the data asset. We have seen a lot of firms storing great volumes of data and getting very little benefit from it.

There is also the fact that Firms are scared about falling fowl of complex data protection legislation. It is important to get a clear view of what they can / can't do with the data that is available to them.


Firms should not waste time waiting for a generic ‘silver bullet’ solution to be created by the market. In order to obtain a competitive advantage firms need to start thinking about their information management strategy at a granular level. Development of that strategy should not be developed by IT and data technicians in isolation; rather it should be developed in conjunction with the business insight of market and functional leaders within firms. Only then will we see insurers harness the benefits of Big Data. 


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Murray Raisbeck

Murray Raisbeck



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