Changing landscapes are a constant feature of the motor market but the one we are coming to terms with now is potentially like no other. Motor underwriters are rarely shy types but for now they are tight lipped about where the market is heading. Who can blame them?
Let’s step back to just three months ago. We would have been talking about insurers looking to limit exposure to the transport sector on the grounds that they can’t get enough premium from customers to cover the costs of catastrophic personal injury claims. Claims frequency would have been in there as would vehicle repair costs, the cost of reinsurance and the Motor Insurers’ Bureau levy. A simple conclusion – double figure rate increases and restricted markets.
Since Lockdown on March 23rd and businesses being forced to close we now have extraordinary changes in risk profile. There is a common understanding that traffic volumes are massively reduced and consequently observers are noting perhaps up to 70% reduction in accident frequency. Many have been forced to lay vehicles up and accordingly pro-rata adjustments. We are already seeing a marked difference from markets. The rate range we have seen is typically from 10-15% of full from Lloyds markets. From composites up to 25% or 0.5% of value subject to a minimum premium. Some carriers are insisting of AD F & T – others happy without the AD. Customer response varies of course but we have yet to see the real reaction of buyers until we get to larger volumes of annual renewals.
It is pleasing to see insurers accommodating change of use requests and re-purposing of vehicles. For now we are hearing a consistent message – it depends how long the lockdown will last and insurers expressing caution as to what the “new normal” will bring. Underlying motor risk is still there beyond the temporary lockdown period and insurers and brokers still have fixed expense. Renewals have yet to be really affected as invites are reflecting full exposures and claims experience. We get that but for brokers seeing return premiums given, reduced cover, and /or clients not being able to continue the harsh reality will be a focus on the costs of business and clawing back revenues as quickly as possible.
Quote volumes in the market are lower than normal. This is logical as brokers and insurers cope with internal issues. Less marketing needed as customers also have other matters on their minds. Now is probably not the most obvious time to look to move capacity provider. Let’s see what the end of May looks like.
For now it appears that service continuity is in order. Vehicle recovery arrangements are operating 24/7 and repairer networks appear to be coping within Government guidelines. We have yet to see any significant impact of parts supply issues and perhaps the bigger issue will prove to be actually having a workforce available to perform the works needed. The supply chain issue will be people rather than parts.
The thorny issue of fraud needs also to be considered. Claims management companies are hardly likely to be less active with individuals who have had an accident. With more people in reduced financial circumstances expect increased take up of assistance. Catherine Burt who leads DAC Beachcroft motor counter fraud services has a fascinating insight:
“The global financial crisis in 2008 is widely accepted to have produced an increase in fraud and the predicted recession from this pandemic is likely to have a similar effect, albeit in a more complex digital environment. Dr Donald Cressey, a respected American Penologist and Criminologist, identified a fraud triangle, where fraudsters needed incentive, opportunity and the ability to rationalise their actions to perpetrate fraud, and in a recession those elements come together. Insurers’ difficulties in handling litigated and pre-litigated claims due to resource issues may lead fraudsters to believe that their claims will be less well scrutinised”
Post Lockdown what will we see in terms of different ways of working? Some businesses are already suggesting that they are saving travel and accommodation costs which logically will be a continued focus for businesses re- establishing business as usual. Will we see a significant shift to more people working from home, much reduced travel and increased video conferencing? This could suggest lower vehicle numbers, accident frequency and an insurance market response of wait and see how this pans out with individual claims experiences. The price of fuel may also be a factor. If fuel continues to drop in cost this correlates to road usage in normal circumstances and rises in accident frequency. Maybe we will see a rise in the use of cycles and motor cycles with the issues that brings in terms of personal injury claims.
There might be another view though and we could see a super surge of road use and consequently a predictable increase in traffic volumes and accident frequency. We might expect road distraction to be a real risk as drivers flock back to the roads and as 90% of accidents are caused by driver distraction this would bring obvious concern. We have seen a good empirical case of this before in the USA post 9/11 where in the twelve months following September 11, 2001, there were an estimated 1,600 more accident-related deaths on American roads than would have been expected statistically.
So what about rates? Capacity provides will argue for sure that there is uncertainty in how long the UK will be forced to be in “lockdown” so no need for a knee jerk reaction and that any reduction in claims frequency and costs will be reflected in motor experiences over time. Pretty sure lower investment returns, financial market volatility and impacts on Solvency 2 requirements will be considerations in the need to support rate in the market. The commercial motor market faces a stern test in its ability to underwrite, articulate a compelling sense of fairness and make logical decisions. Larger risks will get this we feel sure but what about the ability of automated rating engines on lower end fleet? Let’s hope we don’t see silly things where rating engines are not able to recognise the true picture of exposure where vehicles are laid up /not been used as much. A word of warning to the sector.
We have a cautionary hope that the UK Insurance industry will be keen to be seen to be listening to customers. Our prediction would be that insurers will continue to treat each risk on its merits and perhaps the rate of increase may slow as compared to back end 2019 and early 2020. As the late great Joe Strummer said ” The future is unwritten”.