MSE News: Jobless get walloped when buying insurance

mikey72

dunstonh wrote: »

The more questions asked, the more it costs to implement and the more likely errors of application will occur. They have to balance costs (implicit and explicit) against the results it will achieve. Remember that the unemployed are a minority and chances are there are not enough to justify having their own questions for the sake of what is likely to be a nominal difference in premium for an even smaller minority.

"The more questions they ask, the more likely errors of application will occur" Not the more likely you'll get a true estimate of the actual risk? At least you now appear to agree with me, you wouldn't expect to see the question appear, so long as they can justify any gain in profit by not asking.

vaio

SnowMan wrote: »

A large number of those recording themselves as 'unemployed' for car insurance will be long term unemployed and in receipt of means tested JSA.

Anybody else, in the practical world could put themselves into another category and I suspect most do.

Now ABI guidance may say you should record yourself as 'unemployed' if looking for work but I expect most don't.

You can understand (moral and risk of being uninsured arguments aside) why most don't because I think most, apart from the long term unemployed in receipt of JSA, will feel confident that there will be no problems if they claim and others will feel they 'can't afford' to tell their insurer they have become unemployed or simply overlook to tell their insurer. Someone who had been out of work for 2 months might think if they have an accident (rightly or wrongly) I can say 'I considered myself to be employed although very temporarily out of work', someone not in receipt of JSA might say 'I decided to take a career break' if ever challenged.

So those who are out of work for a short period together with those not in receipt of income based JSA (because of savings or partner income and remembering that contribution based JSA lasts only 6 months) will never tell their 'insurer' that they are 'unemployed'.

So in calculating insurance premiums anyone who has just been made 'unemployed' who actually tells their insurer is going to be lumped together with the group of 'long term unemployed' and will be rated based on experience weighted towards the 'long term unemployed'.

Now clearly that isn't 'fair' to those who are 'honest' and tell their insurer they have just become 'unemployed'

But I suspect it isn't easy for an insurer to differentiate between these two distinct sub-groups without incurring significant expense in checking status at both the application and claim stages and it is difficult to precisely define 'unemployed'. And so it is not that easy for an insurer to come in make the differentiation and offer better rates to the lower risk group.

So the problem is that within the group 'unemployed' there are distinct groups who experience widely different experience but that it is difficult to differentiate between them in a practical workable way.

Lets not forget that premium rating isn't just about identifying groups with different risks it is about balancing it against the costs and practical, moral and legal issues of identifying those different risks. One of the biggest risks is how many miles are driven each year, but I suspect insurers have taken the view that what people, put on the form for estimated mileage will often be wrong or non verifiable and so do not take full account of that information. Obviously that may change with tachograph type technology (such as that used by Aviva for young drivers I think I saw?) but at the moment mileage isn't fully taken account of.


Clearly there is an unfairness that needs addressing, but in all honesty I am not sure what the solution is.

You can understand how any one individual insurer wouldn't want to try and make the differentiations of the 'unemployed' group and you can understand that there is a danger if making a universal change across all insurers of making things incredibly complicated.

Perhaps there should be some ABI guidance to say that those people finding themselves temporarily unemployed can record themseves according to their previous occupation together with a help box when applying to tell the 'honest' customers that it is OK to record themselves that way.

if your theory about long & short term unemployed is correct then I don't really see the difficulty in adding a question to find out how long someone has been unemployed

as for mileage, surely the record kept at MOT time will answer that question in most cases?

TraderDJ

I think the long/short unemployeed could be partly correct. I know when I graduate there's an option for 'graduate' for those not in work... but unfortunately it's 'graduate <6 months', so essentially it works to differentiate between short and long term unemployed since university - it's a few hundred cheaper than if I just picked unemployed outright.

If they can do that, surely they can have unemployed <6 months. Unemployed 6 months - 2 years. Unemployed 2+ years or whatever? That would certainly be easier to statistically do the risk modelling on than a box saying 'how many months have you been unemployed' with a space for a text answer. So I don't agree with arguments about extra costs etc - they essentially have it for graduates and, quite bluntly, they don't want it for anyone that's not a graduate as it makes them more dosh!

Interestingly, on my cheapest Student quote, self-employed isn't even an option! So I assume you'd have to put company director? As I was investigating earlier.

It's a lot cheaper than unemployed, and surely the self employed or even someone with a dormant company could technically fairly class themselves as a director and not being unemployed...especially if they aren't (or can't) claim JSA

SnowMan

vaio wrote: »

if your theory about long & short term unemployed is correct then I don't really see the difficulty in adding a question to find out how long someone has been unemployed

It is indeed only a theory. I don't have any practical experience in general insurance or statistics to back any of it up.

Certainly I think the solution may be along those lines.

There are some practical issues though in terms of how you define the categories and where you draw the line between someone who is 'temporarily unemployed' or 'long term unemployed' and what happens if that line is crossed (say) 6 months into an insured year.

vaio wrote: »

as for mileage, surely the record kept at MOT time will answer that question in most cases?

Interesting question. I've often wondered whether it would be workable for an insurance company to come in and try to charge according to mileage on the MOT certificate.

There are some practical issues though:-

1. mileage isn't known until after the insurance is taken out so you would have to think about how you then adjust for over/under estimates.

2. If you rate based on historic mileage you can get selected against by those who know they are prospectively going to increase their mileage.

3. the MOT year is different to the insured year

4. when the miles are done and on what sort of roads also affects the risk.

5. you would have to get people to send in their MOT certificates to verify their mileage or be able to access the online database.

6. new cars don't need an MOT

7. there is a risk of 'clocking'

westv

Would the job you do actually come up in any claim anyway - aside from any claims made in the course of business?

vaio

Don't know, but it doesn't matter anyway.

If the insurers ask the question then you have to answer honestly

westv

I can't think of any other insurance question that can be open to such variety of interpretation whilst still being answered honestly

mikey72

I agree there. I was claiming contribution based JSA, with no intention of working for 6 months. Great time with the kids, and nipping in for the MacDonalds every other week when I went in. Definately househusband for that period.

Former_MSE_Dan

raskazz wrote: »

But it won't be by a "single action". There will be interaction with other factors by matricised rating - principally MOSAIC profile, payment method and credit checking/validation scores such as electoral roll match.

With respect, you clearly don't know what you're talking about.

Thanks for that respectful comment...

In the quotes we retrieved, the ONLY changed factor was the job, nothing else. Therefore that is what affected the prices.

dunstonh

In the quotes we retrieved, the ONLY changed factor was the job, nothing else. Therefore that is what affected the prices.

Have you factored for the anti-fraud checks that will increase premiums on those that change their details? i.e. get a quote, go back and change occupation and the system picks up the change and many providers will increase their premium above the norm due to increased risk of fraud.