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Insurance premiums will rise after drastic cut to discount rate
Insurers anticipate that average car insurance premiums
could rise by up to £75 a year as a result of a government ruling which was revealed
this week.
The Ministry of Justice (MOJ) has announced a new formula
for calculating the compensation payouts awarded to claimants who suffer
long-term effects of their injuries. Insurers were expecting a reduction in the
discount – known as the Ogden rate – which is applied if an insurance company
makes a lump sum payment to a claimant. However, the reduction from 2.5 per
cent to minus 0.75 per cent is considerably bigger than anticipated. Some insurers said they had provided for a
discount rate move to 1.5 or 1 per cent, with the most conservative rate move
anticipated as 0.5 per cent.
Huw Edwards, director-general of the Association of British
Insurers called the decision to make such a large change “crazy”. He said: “claims costs will soar, making it
inevitable that there will be an increase in motor and liability premiums for
millions of drivers and businesses across the UK”.
The discount rate, which had not been amended since 2001,
is based on gilt yields, or interest rates from government bonds. However, with
the effect of inflation as well, the MOJ said that the real return is negative.
Experts have advised that the hardest hit will be those
with larger insurance premiums, so a driver under the age of 22 may have to pay
up to an additional £1,000 per year. The beneficiaries of this change will be
accident victims as they will receive higher payouts.
The MOJ said that it had no choice but to reduce the
discount rate according to the existing law and they will now launch a
consultation on how the system can be made fairer.
Limited payments for whiplash claims announced
The Prisons and Courts Bill has been published today and it
contains new fixed tariffs for personal injury claims.
The government had originally planned to increase the
payment limit to £5,000 across the board.
However, the bill sees a change to this plan with a small claims limit
of £5,000 for whiplash injury, but a lower threshold of £2,000 for other
personal injury claims. The bill also
includes a ban on settlement of such claims without medical evidence.
This bill follows a government consultation which ended on
6 January. Justice Secretary Elizabeth
Truss announced the legislation and said that the measures introduced will cut
car insurance premiums by around £40 per year.
The government is “helping to crack down on the compensation culture
epidemic”.
Lawyers will be excluded from low value claims and
successful claimants up to the thresholds announced will not be able to recoup
legal expenses.
James Dalton, ABI director of general insurance policy,
said “The reforms to whiplash claims set out in the bill cannot come soon
enough, for far too long claimant lawyers have been defending a system riddled
with exaggerated and fraudulent claims because they have been profiting
handsomely from it. The gravy train must
stop”. He continued “People want an insurance
claims system that provides compensation and support to those who genuinely
need it. What they don’t want is to be
plagued by spam calls and texts from ambulance chasers, whilst personal injury
lawyers continue to profit from a broken system in urgent need or reform”.
The lobby group Access to Justice criticised the bill. They believe that the small claims limit
“discriminates against ordinary people suffering whiplash injuries and will
open the doors for claims management companies and cold callers to wreak
further havoc on our market”
Insurtech: via technology partnership or mergers and acquisitions?
Insurtech dominated media headlines in 2016 and became a
recurring theme in research reports. This year we can expect more of the same
as digital technology continues to reshape traditional practices and attract
startups and challenger brands.
According to survey results released in January by Willis
Towers Watson and Mergermarket*, insurers believe the immediate priority is to
digitise their businesses as quickly as possible. Almost three-quarters (74 per
cent) say they lag well behind fintech leaders and must catch up.
Fergal O'Shea, EMEA life insurance M&A leader at Willis
Towers Watson, said: "Insurers recognise the importance of building a
sustainable digital infrastructure to improve customer engagement and as an
essential distribution channel, which is likely to be addressed through internally
driven innovation, joint ventures and M&A activity. For those that
hesitate, there remains the commercial risk that they will get left behind and
fail to capture future generations and younger policyholders who are more
likely to engage via digital distribution.”
Almost half the survey respondents (49 per cent) expected
to make an acquisition to acquire digital technologies in the next three years,
and nearly all respondents (94 per cent) thought distribution is where digital
technologies will make the greatest impact in the next five years.
More than three quarters (77 per cent) said web and mobile
will be a key focus for the next two years, with big data, automation,
robo-advice and sensors also identified as being significant in the next five
years. Insurers also recognised the huge role that digital technology can play
in increasing operational efficiency and enhancing customer experience.
Analytics is another growth area highlighted by the survey.
Nine out of 10 respondents said they have investigated ways to gather more
information from their customers and 79 per cent use social network data.
Even though technology startups can now steal market share,
the survey revealed that insurers believe they will prevent this by adopting
new technologies themselves and by adapting to a changing marketplace. Just 8
per cent saw new entrants from the technology sector as a major threat to their
business.
If insurers are to bridge the technology gap, they need to
work closely with specialists such as RDT. A technology partnership is
another way of describing the joint ventures mentioned by Fergal O’Shea, and it
can be a quicker and more effective route than mergers and acquisition or
internal innovation.
As a technology partner and industry expert, RDT enables
insurers to implement digital products and services across all parts of the
insurance chain. Distribution, underwriting, claims and settlement are
supported by versatile cloud-based technologies that create a powerful new
platform.
In this sense, joining forces with RDT is a soft merger – a
blend of two insurance businesses and the creation of a new
infrastructure, but without the administrative or operational hurdles
associated with a conventional merger or acquisition.
* Willis Towers Watson and Mergermarket surveyed 200
senior-level insurance executives in 2016. The aim was to map the changing
attitude of insurers to digital technologies and to examine the extent to which
companies are using M&A strategies to realise their ambitions.
Insurance professionals among most accident prone groups
Aggregator
site GoCompare has released its study into which professions are most likely to
make a claim on their car insurance policies. The results aren’t too good for
those of us who work in the insurance industry!
Three
insurance sector professions made it to the top 20 with claim rates well above
the national average of six per cent. In the top ten were insurance consultants, with 10.18 per cent of them claiming
in the past five years. Then came insurance representatives, with 9.42 per cent
making claims, followed by (even more ironically) claims adjustors at 9.39 per
cent.
However
the study revealed that it’s health care professionals who are, by some margin,
the biggest claimants. GPs came in top, with nearly 13 per cent of them lodging
at-fault claims in the past five years. Hospital consultants were a close
second with 12 per cent, while hospital doctors and surgeons were in fourth and
fifth place, with just over 10.4 per cent of them making claims.
Meanwhile
the least likely to claim on their car insurance were car dealers, abattoir
workers and car wash attendants.
Government framework for insurance for driverless cars expected this week
The government is expected to set out a framework for
insurance for driverless cars this week.
The move has been welcomed by insurers as the framework
will enable them to design and tailor appropriate products. In addition, they were keen to have a single
insurance policy as opposed to separate policies to cover the driver and the
technology.
The Department for Transport has said that it recommends a
2-in-1 single insurance policy which would cover a motorist when they are
driving as well as a vehicle when it is in autonomous mode.
Chris Grayling, the Transport Secretary, said “Automated
vehicles have the potential to transform our roads in the future and make them
even safer and easier to use, as well as promising new mobility for those who
cannot drive”. He continued “We must ensure
the public is protected in the event of an incident and this week we are
introducing the framework to allow insurance for these new technologies”.
According to a report by The Telegraph, the government
wants to obligate driverless car owners to have two-in-one cover in the hopes of
avoiding confusion over insurance claims.
The proposed DfT rules mean full control and responsibility will be
handed over from the motorist to the autonomous car as soon as it goes into
driverless mode.
View the RDT company video to see what it is like to work for us
Our company video can be viewed here. It will give you an idea about what it is
like to work for an innovative company and what makes the people here tick.
If you would like to learn more about RDT, please contact us.
Record High Motor Insurance Premiums
SOURCE: ABI
Insurance premiums have
reached their highest recorded level, according to the ABI. The insurance body
says the increase has been caused by the combined effect of a rise in repair
costs, increases in Insurance Premium Tax and a continued rise in whiplash-style
claims.
Premiums rose by more than
five times the rate of inflation in 2016, with the average premium now costing
£462. Further rises could come if the Ministry of Justice goes
ahead with plans to reduce the discount rate for insurance payouts.
One reason
for the increase in premiums is a rise in the cost of repairs because of cars’
increasingly sophisticated electronics. Another is that buying spare parts is getting
more expensive because of the weakness of the pound. The average repair bill
has risen by 32 per cent in the past three years, the ABI said.
Rob Cummings, the ABI’s assistant director and head of
motor and liability, said: “These continue to be tough times for honest
motorists. They are bearing the brunt of a cocktail of rising costs associated
with increasing whiplash-style claims, rising repair bills and a higher rate of
Insurance Premium Tax.
"The
sudden decision to review the discount rate has the potential to turn a drama
into a crisis, with a significant cut throwing fuel on the fire in terms of
premiums.”
Fun night out bowling
RDT’s 2017 social calendar kicked off last night with a
visit to our local ten pin bowling alley.
Twenty-two staff members from the Kings Hill office spent the evening engaged
in intense competition, with Will O’Shea coming out on top with the highest
score of 189.
The evening was thoroughly enjoyed by all and was organised
by our new Administration Services Manager, Maggie Chapman. You’ll be able to learn more about Maggie in
our Employee Spotlight later in the month.
Digital distribution and the rise of the ‘Nomad’
In a report released this month titled The Voice of the Customer: Identifying Disruptive Opportunities in Insurance Distribution, the consultancy firm identify a growing number of people – particularly so-called millennials – who want to purchase insurance in the same way they buy consumer products.
Accenture surveyed more than 30,000 people and divided them into groups according to digital experiences and preferences. The term ‘Nomad’ was used for the most digitally active group, who wanted speedy access to insurance through smartphones and other mobile technology.
Nomads are drawn to pay-per-use insurance, especially for cars, and want the convenience and immediacy of buying online. As Accenture points out, the future of distribution will increasingly be shaped by this group. The report states: “To remain relevant and become an everyday insurer, carriers need to change their business model from one that is product- and process-driven to one in which the customer is central, data and analytics drive most decisions and experiences, and the key enablers are advanced technologies”.
RDT builds the technologies that are redefining user experience and giving providers greater focus and accuracy. We’ve done it with Equator, which centralises rates and enriches data, and now we've created technology that directly addresses the needs of Nomads. A good example is Trice, RDT’s groundbreaking app, developed for Trice Insurance and unveiled at the InsurTech Rising conference last November.
Old habits needn't die hard
Did
you resolve to embrace insurtech this year, to reap the benefits of improved
customer experience, get your products to market more quickly or simply resolve
to be more efficient?
With
January fast coming to a close, have you forgotten or are you ignoring those
resolutions that you made at New Year? You’re not alone, research shows that
63% of Britons have failed to keep a resolution and 66% of these didn’t manage
to keep them for a whole month.
As
the year progresses it becomes harder to keep our new habits; the same research
shows that less than 14% permanently adopt their resolutions. The majority of
us drift back in to our old comfortable ways and find ourselves making the same
resolutions for next year.
It
doesn’t have to be like this, you don’t have to work alone, you can partner
with RDT. Using our expertise in technology and insurance we can help you to
achieve your goals.
We
can help you revolutionise your customer onboarding by using external data
enrichment to minimise the questions and time required for your customers to
get a fully underwritten quote.
Our
suite of products cover all parts of the insurance chain allowing you to realise
efficiencies across distribution, underwriting and claims settlement.
Contact us to find out how we can help you
Further rises in motor insurance premiums, and increased gender gap
The latest confused.com car insurance price index, in
association with Willis Towers Watson, has revealed that in Q4 2016
comprehensive car insurance premiums were 14 per cent more than in the same
period the year before.
The price data was based on almost two million customer
quotes and compares to a 6.9 per cent increase for the same period in
2015. An average comprehensive car
insurance premium is now £767.
It has been suggested that the increase in premiums is down
to a number of factors including the rise in IPT, increased repair bills as
cars get more sophisticated, and “ambulance chasing” lawyers. A spokesman from Willis Towers Watson said
there could be “an underlying slowdown in the rate of premium increases”, which
would be welcome news to motorists.
Employee Spotlight - Justin Cordingley
Hi,
I’m Justin Cordingley and I’m head of delivery at RDT Ltd. After getting my
degree in civil engineering I began working as a structural engineer – there are
a number of commercial developments in London that are seated on my designs and
calculations. But then I was enticed by the excitement and pace of the IT
industry and decided to leave structural engineering and try a new career as a
software engineer.
Quick Risk Score
Just
over a year ago one of our clients asked us to create a tool that would enable
them to make rapid decisions about the acceptability of specific risks. This
led to us developing a new module of our rating platform Equator, which we
called Quick Risk Score.
Our
client has been using QRS for more than a year to help then make decisions
about risks as niche cars and drivers with endorsements or restrictions. The
benefits of the module, for both the brokers and the insurer, have proved to be
huge. QRS eliminates the time-consuming elements of trying to place niche business
and provides a very accurate picture of the risk, further improving the
profitability of our client’s underwriting.
You
can read more information about Quick Risk Score in our most recent edition of
Prism, our technology newsletter.
Driverless cars: pain before gain
Driverless cars could make traffic congestion worse before they make it better, a study by the DfT has revealed. This is because the cars won’t be able to perform at their best until they begin to outnumber traditional cars – and until that day comes they’re likely to drive slowly and over-cautiously.
The performance of driverless cars relies on the way
vehicles around them behave, meaning that many advantages of AV technology
won’t be felt for years, the report says.
Is Flood RE enough? – what more needs to be done?
Flood
Re will have been in place for a year this April, guaranteeing affordable insurance
for all households that are at risk of flooding. Last November’s half per cent rise
in insurance premium tax was implemented to raise money to spend on flood
defences.
But
is enough being done to stop homes flooding?
The ABI has once again criticised planning chiefs for approving the
building of thousands of houses on land which is at risk of flooding. The
Environment Agency also objected to the building projects and had provided
flood risk advice which was overruled or partially overruled.
Insurance requirements for automated vehicles
The DfT has proposed amendments for the motor insurance
framework to include automated vehicles. The amendments will require changes to
legislation, however the government says it will change as little as possible
in order to enable the market to develop the appropriate products for AVs.
The proposal is that an insurance company will cover both a
driver’s use of a vehicle and the car’s AV technology. Having appropriate
insurance will still be compulsory and the insurance would cover times when
motorists are in control and when cars are in automated driving mode.
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