Car insurance hike 2022

DullGreyGuy

GSte said:

DullGreyGuy said:

GSte said:

Aretnap said:

It's not an EU directive - that ship sailed some time ago. It's from the FCA and means that new customers should pay the same price for the same policy as renewing customers.

Which naturally means that if you were a new customer last year there will be a large increase in your premium this year. Last year you got a large discount for being a new customer - this year you don't. Nor can you get a much cheaper quote by switching to a different insurer - that insurer isn't allowed to offer you a new customer discount either. If you're the sort of person who shops around regularly the overall effect is that you'll pay more for your car insurance, to protect people who have been with the same insurer for a decade or more.

Cost of living increases and supply chain problems have also pushed up car insurance prices - used car prices have gone through the roof and spare parts are often difficult to source inflating repair costs. But if you're a frequent switcher then the biggest factor will be the loss of new customer discounts.

Not sure about the comparison site quote being lower than the renewal quote. Are all the details and optional extras (legal cover, courtesy car cover etc) the same?

Ah okay - had assumed EU directive had been adopted by FCA. Either way had hoped this would possibly lower premiums for all. Should have expected less from insurance companies!

Why on earth would you think it means lower premiums for all?

The FCA assumption was that it would be neutral and so those that shop around each year pay more and those that never shop around pay less. One of the counter arguments against the proposal was the negative impact on those that are vulnerable due to money issues who'll no longer be able to get new customer pricing which in turn may result in more people choosing not to insure. The FCA acknowledged the fact but felt the positive impact on those that dont shop around, who are typically "older people" (to use the FCA's description), outweighed it.

Steady on, we're having a chat online, no one's life depends on this.

If companies spread the discount they offer new customers across all new policies/renewals, thereby reducing everyone's premiums a bit. The assumption being that the 'discounted prices' are still in and of themselves profitable/only a slight loss, compared to the renewal hikes which again I was assuming are vastly inflated and lead to bloated profits and that some of that bloat may be ceded by the insurance companies. Which may or may no be correct, I don't have the data. And even if it were, it also assumes they would be willing to take a hit to profits, which of course is optimistic. I do like to hold faith in humanity and ethics, though as per previous comments I realise that hoping for that to be displayed by an insurance company is masochistic.

No, new business prices can be written at a notable loss... Motor insurance doesn't tend to have too much catastrophe exposure compared to other lines which means they can sail closer to the line. Pre-covid the motor insurance combined ratio tended to be between 95% and 105%. This compares the net premiums against the net claims and operating expenses. This doesn't consider investment return, which for Motor tends to be a few percent because of the short term nature and any secondary revenue streams (eg selling space on their legal panel). 

So if on average its break even then the 20% new customer discount offered will put that policy notably in the red and its only affordable because 70%+ of your book (for the established mass market insurers) are not new customers and so they cross fund.

A former client launched a new brand and because their book was almost all new customers they were making significant losses, combined ratios over 130%, and was only possible because of parental investment to support it through its growth period. 

GSte said:

It may lead to a happier customer though. Your argument here assumes that it's right to put profit (in this case generated by shorter phone calls meaning less staff needed and hence lower wage bills) ahead of that - I'm advocating for better customer service despite lower 'efficiency' (gosh that word leaves a foul taste in the mouth).

Car insurance etc is a commoditised distress purchase... price is king and lower prices are achieved, in part, by finding ways to reduce your overheads like staff. A well known ethical brand published research several years ago that on average their customers would leave them to save £1.20 per year even if the other company was a totally unknown entity with no ethical stance.

There are insurers that put service above price but when the average Home insurance is currently £140 and they charge a minimum of £750 they clearly only appeal to certain customers who often appreciate the other aspects of the policy such as it being all risks rather than named perils.

Interestingly an MD of a former employer did want to introduce a mass market advisory service which would have been, in his view, very different to anything available for outside of the High Net Worth but he couldn't sell the idea to his bosses that people would pay an extra £X per year for this.

I'd love to know which customer would be happier by knowing they've randomly had their premium loaded to test how customers like them respond to a higher price to enable us to model what the impact of pricing changes will be. 

400ixl

For Motor general insurance, a very well run company the profit margins typically will be in the 6-10% range, average companies on the 1-5% range and many in the negative figures. GI is not the cash cow that people on the internet or in the pub will have you believe. It is often the lead into upselling other more profitable insurances.

The way they make their profit is the take your premium and they invest it until they have to pay out a claim (yours or someone elses). This means that they make better profits when the stock market is doing well (and prices can go down), but when the stock market is down (and with supply chain issues and inflation high) they have to put prices up. Guess which part of the cycle we are currently in.

It is these narrow margins that mean they have to be as efficient as possible and why having customer contact centre staff chatting the breeze with customers that is not going to either result in sold business or getting them into a claims process (as an example) could wipe out the profit they would make on the policy. Virtuous circle is then the price goes up and the merry go round spins again. 

DullGreyGuy

400ixl said:

The way they make their profit is the take your premium and they invest it until they have to pay out a claim (yours or someone elses). This means that they make better profits when the stock market is doing well (and prices can go down), but when the stock market is down (and with supply chain issues and inflation high) they have to put prices up. Guess which part of the cycle we are currently in.

Insurers are very limited in the amount they can invest in shares... these are high risk and therefore require the insurer to hold notable additional capital against the risk that the shares reduce in value which means they can sell less insurance.

Insurers more often invest in bonds, gilts and other financial instruments but the issue for GI is the short term nature of the insurance -v- Life or Annuities. A GI insurer doing ok will hopefully getting 3-4% returns in normal markets whereas Annuities will typically get double that and get the advantage of matching adjustments meaning they have to hold less capital in the first place. 

400ixl

I am fully aware of where they can and can't invest, some of the work I did was on the systems for the investment arm of the insurer. I once again didn't see the need to go verbose on exactly where they invest to make a simple point of how that part of an insurers business is funded. Also did work with the Basel II framework at the time if you really want to trade on technicalities.

The level of detail is really not needed to get the principle across as to why there is a cycle of pricing influenced by the financial markets that many are not aware of.

Please do add information if you wish, but please try not to come across as if you are trying to pick fault in what other people have posted. Not everyone wants to spend the time going into detail to make a point.

DullGreyGuy

You explicitly stated they take premiums and invest in the stock market which broadly isnt allowed (or more accurately the additional capital charge would make it unaffordable), any more than insurers can go to bookies and put all the money on black

No-one is suggesting you need to fully explain the full SII rules but there is a level of simplification that gets to being simply wrong. 

Really not sure the relevance of Basel II for an insurance discussion?

400ixl

I didn't say that at all. I said they invest the money they get in (full stop). I then said from a pricing point that they tend to do well when the stock market is doing well which is factually correct as when that is doing well, then typically all the other investments be it property, bonds etc are doing well. 

I'm not going to get into it, you clearly have a good understanding how the industry works as well, so use it to help others, I have no interest in trying to one up anyone.

DullGreyGuy

400ixl said:

I didn't say that at all. I said they invest the money they get in (full stop). 

400ixl said:
This means that they make better profits when the stock market is doing well

Given the relationship between the stock market, gilts, bonds and other forms of acceptable investments the above would only reliably be true if you believed that insurers were predominately invested in the stock markets 


Still interested in your thinking as to why Basel II is materially relevant to a GI insurer