Ways in which the insurance industry could improve

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Could, and should, the UK car insurance industry be improved?

Car insurance rates have risen by 40% in the last 12 months. There has been no indication of the prices coming down any time soon and car owners should brace themselves for further increase. In enforcing equality legislature, the European Court of Justice may have taken an action that could have a direct effect on current changes, but this is just a beginning step. Insurance companies need to adjust their regulations and improve their services to the public. A few changes will also increase business prospects for industry players and curb the ongoing loss-making.

Under the new legislature, insurance companies will no longer set rates on the basis of an applicant’s sex. The trend all along has been for male drivers to pay much more than their female counterparts. While there is some truth in the assumption that female drivers are better drivers, it is not a factual statement and has no basis in the assessment of risk. Insurance companies have been canny in using the gender argument to their advantage.

Out of this seemingly simple deduction came all sorts of insurance policies. We now have Sheilas Wheels, Girlmotor and Ladydriver among other specialist plans, designed for female drivers. The most amusing thing is that all women are clumped into these options, regardless of whether they are good drivers or not. It is not unusual for a Diamond policy holder for instance, to be deemed at fault in a really bad accident. That notwithstanding the fact that the other driver is a careful male driver, who has never had an accident in all his driving life but who pays over 30% more for a policy with similar features as hers!

It is not just the gender factor that needs a broom sweep. Actuarial measures such as age can also be mooted. Not every 40 year old woman or man drives carefully. Some in this age bracket are worse than under-25 drivers. Yet their premiums are cheaper than those of the under-25. Similarly, some young drivers are very sober on the road, and leave a very impressive driving record. Should there not be a way to reward these drivers for their good conduct on the road?

At present, there are no measures to accurately determine one’s risk perception. Calculation is done on basis of generalizations which do not give a precise assessment of one’s capability and behavior on the road. Factors such as experience are too broad. One can have 25 years’ experience but on a deserted rural road. Such a driver’s experience is not comparative to that of a driver with 5 years’ experience on a busy highway in an urban area.

Car insurance companies need to come up with better ways to compute premiums. A good starting point would be constant monitoring to determine one’s behavior on the road. A simple device that can be inserted into the car to monitor speed, timing, technique and other relevant factors can be used for this. Works just like a bug. Data collected in this way is personal and more specific. With this, drivers will pay only what they truly deserve, just as happens with health and life insurance.