Vehicle insurance is a con

[Baldseagull]

57 years old. Been biking for 40 years, 100% no claims, no convictions and no changes to my policy or bike yet the b*stards wanted to charge me 40% more for my premium than I paid last year. I phone up, complain, and then they discount it back to what I paid last year. What a f*cking con.

If it was that easy to go down to last years price, you were probably paying too much last year as well, shop around.

 

[Baldseagull]

I've spent 20+ years in the industry, the bulk of which has been spent pricing Motor insurance (Cars, Bikes, Vans & Fleets). I may occasionally be a bit of a c*nt but also don't consider myself "sub human scum".

Personally I don't agree with "Price Optimisation" (which includes the practice of charging existing customers more) but the reality is that if someone else is doing it, you have to otherwise you will have no business.


The specific example used by the OP is about customer segmentation and to respond to [MENTION=242]Hornblower[/MENTION] 's example of buying a newspaper, EXACTLY the same segmentation and price differentiation happens for newspapers too (its just done in a different way).


In the simplest case there are two kinds of people...

1. Time rich, cash poor TRCP
2. Cash rich, time poor CRTP

The first group will put the time and effort in to seeking out the best price. They will shop around, they will look for deals, they collect/use their 'clubcard' points, (THEY WILL CUT OUT THE COUPONS THAT LET YOU BUY THE PAPER FOR 50P RATHER THAN A POUND).

The second group are the opposite. They will pay a premium on something to avoid the hassle of having to shop around to save a nominal amount. (All the studies I have done - and its a lot - is that for Motor Insurance, this figure starts at £50 and goes up from there - most people do not to want to do the paperwork etc for less than that saving).


All of your personal details (age, gender, location, the car you drive, buying pattern, claiming pattern, no of changes you've made, etc etc) will be used to put you into one or the other category (there will be lots of categories but I'm simplifying things). This will determine whether the insurance company (OR NEWSPAPER PUBLISHER or supermarket or whoever) thinks you will pay more to avoid the hassle or not. If you are expected to be in the "Cash Rich, Time Poor" category then £50 will be added to your price (or whatever the load is... usually a percentage, again I'm simplifying) and the extra is used to discount someone deemed to be in the "Time Rich, Cash Poor" category.
When you call up, you've proven that you have been put in the wrong category and they will change your price!


Every time you have ever cut a coupon out of a magazine/newspaper and used it in the supermarket you are proving that you are TRCP.
Every time you have bought something in the supermarket that had a coupon offer available somewhere, you are proving you are CRTP.


To put this into context and I cannot emphasise this enough to anyone who thinks we are "sub human scum"...

THE MOTOR INSURANCE INDUSTRY MAKES MONEY, ON AVERAGE, JUST ONE YEAR IN SEVEN. IN ALL OF THE SIX OTHER YEARS, THEY LOSE MONEY!

Motor insurance is a "gateway" to the customer - because its pretty much the only compulsory insurance most people buy. The company is ONLY interested in you because they believe they can sell something else to you that is profitable!

(*There are a few motor only insurers out their who operate in niche markets where they can make money, but they still lose money regularly unless they are really good!)

This is not quite true, they may pay out more in claims than they take in premiums but they do turn a profit on selling your information. bizarrely, usually to ambulance chasing law firms, who then increase the payouts from the insurance firms by claiming for invisible injuries to persons in the vehicle not at fault. This means that the industry as a whole pay out more in claims than they take in premiums, but they do get into profit from the money from selling the info.
They also try to profit from inflating the price of a courtesy car and repairs they provide for their not at fault customer, and the other insurer pays, and as they all do it, they all end up poorer in the end, unless they are lucky enough to have less at fault drivers than the others.

The insurance industry is losing (a small amount of money) on claims versus premiums, but it is taking a profit on inflating the costs of claims to each other and selling the info which in turn increases the costs of claims. We pay more overall, they take profit in a different area.

 

[Guinness Boy]

I've spent 20+ years in the industry, the bulk of which has been spent pricing Motor insurance (Cars, Bikes, Vans & Fleets). I may occasionally be a bit of a c*nt but also don't consider myself "sub human scum".

Personally I don't agree with "Price Optimisation" (which includes the practice of charging existing customers more) but the reality is that if someone else is doing it, you have to otherwise you will have no business.


The specific example used by the OP is about customer segmentation and to respond to [MENTION=242]Hornblower[/MENTION] 's example of buying a newspaper, EXACTLY the same segmentation and price differentiation happens for newspapers too (its just done in a different way).


In the simplest case there are two kinds of people...

1. Time rich, cash poor TRCP
2. Cash rich, time poor CRTP

The first group will put the time and effort in to seeking out the best price. They will shop around, they will look for deals, they collect/use their 'clubcard' points, (THEY WILL CUT OUT THE COUPONS THAT LET YOU BUY THE PAPER FOR 50P RATHER THAN A POUND).

The second group are the opposite. They will pay a premium on something to avoid the hassle of having to shop around to save a nominal amount. (All the studies I have done - and its a lot - is that for Motor Insurance, this figure starts at £50 and goes up from there - most people do not to want to do the paperwork etc for less than that saving).


All of your personal details (age, gender, location, the car you drive, buying pattern, claiming pattern, no of changes you've made, etc etc) will be used to put you into one or the other category (there will be lots of categories but I'm simplifying things). This will determine whether the insurance company (OR NEWSPAPER PUBLISHER or supermarket or whoever) thinks you will pay more to avoid the hassle or not. If you are expected to be in the "Cash Rich, Time Poor" category then £50 will be added to your price (or whatever the load is... usually a percentage, again I'm simplifying) and the extra is used to discount someone deemed to be in the "Time Rich, Cash Poor" category.
When you call up, you've proven that you have been put in the wrong category and they will change your price!


Every time you have ever cut a coupon out of a magazine/newspaper and used it in the supermarket you are proving that you are TRCP.
Every time you have bought something in the supermarket that had a coupon offer available somewhere, you are proving you are CRTP.


To put this into context and I cannot emphasise this enough to anyone who thinks we are "sub human scum"...

THE MOTOR INSURANCE INDUSTRY MAKES MONEY, ON AVERAGE, JUST ONE YEAR IN SEVEN. IN ALL OF THE SIX OTHER YEARS, THEY LOSE MONEY!

Motor insurance is a "gateway" to the customer - because its pretty much the only compulsory insurance most people buy. The company is ONLY interested in you because they believe they can sell something else to you that is profitable!

(*There are a few motor only insurers out their who operate in niche markets where they can make money, but they still lose money regularly unless they are really good!)

I'd imagine to make money at it you'd probably have to do something like run admin and management services for brands who didn't want to administrate their own insurance. Perhaps you could then add a comparison site, maybe branded with a comedy animal or something before pricing said administrated firms so they always came top of your comparison site. Simples!

 

[Thunder Bolt]

I have switched car insurance a few times, but we're insured with the Coop now, and our premium went down this year, without asking.

 

[Balders]

I'm normally pretty quiet on here, but this thread has been intriguing!

To set the scene, I was in Motor Insurance for 20+ years at Senior Positions - I've seen the market change dramatically in that time and a few years ago I just had enough and got out.

It's important to know who you are dealing with in this market as their are a few players with different priorities: Are you dealing direct with an Insurer who's priority is to balance the books and make a bit of money? Are you dealing with an Insurer via a Broker? Are you dealing via a broker who's priority is to make as much money as possible without major hang ups as to whether the business they provide the Insurer is profitable? Add into the mix affinity deals where an Insurer/Broker offers a "white label" service to Banks, Building Societies, Retailers et al? Many of you would have initially gone through an Aggregator who have a vested interest in people not renewing their policies (as their business model would fail if everybody did!) And to confuse matters further, Insurers and Brokers trade under many different names offering slightly different policies/terms. Therefore it will come as no surprise that the first 50 quotes on an Aggregators website will be variations on probably only a dozen Insurers/Brokers/Affinities!

So if we look at Brokers, there are a few factors that you need to know. Their primary goal is to get to the top of the list on Aggregator sites. They do this by pricing accordingly depending on the risk - and in many instances when I was still in the market, they priced risks with negative commission - it cost them to write the new policy!! Why would they do this? Well if you have a higher propensity to make a non fault claim, the Broker stood to make a lot of money from the potential bodily injury claim that no doubt would also include a hire car. Secondly if you have a higher propensity to be CRTP (from an earlier comment) then they know they have the chance of making some money back at renewal! If you were the opposite of the aforementioned, they'd quote a higher margin, if that makes sense? Add in all the mid term charges for changes etc. and thus you have their business model.

So why would Insurers deal with Brokers - unfortunately they are a necessary evil as the Brokers historically have had the marketing expertise and attract the most enquiries. A lot of the time an Insurer will want to increase rates with a Broker but knowing that the Broker will have another Insurer ready to take that business, the original Insurer, a lot of the time, backs down and doesn't increase their price.

Therefore the market is not only confusing to the consumer, but has many hidden dynamics that drive pricing - funnily enough, bottom of this list is probably each policyholder's likelihood to make a claim that is going to cost the Insurer money.

So with so many competing dynamics - Insurer wants to write profitable business and renew policies - Broker wants to make as much money as possible - Aggregator wants to introduce new policies and is anti people renewing their policies.........no wonder the market is fooked!

 

[Since1982]

This is not quite true, they may pay out more in claims than they take in premiums but they do turn a profit on selling your information. bizarrely, usually to ambulance chasing law firms, who then increase the payouts from the insurance firms by claiming for invisible injuries to persons in the vehicle not at fault. This means that the industry as a whole pay out more in claims than they take in premiums, but they do get into profit from the money from selling the info.
They also try to profit from inflating the price of a courtesy car and repairs they provide for their not at fault customer, and the other insurer pays, and as they all do it, they all end up poorer in the end, unless they are lucky enough to have less at fault drivers than the others.

The insurance industry is losing (a small amount of money) on claims versus premiums, but it is taking a profit on inflating the costs of claims to each other and selling the info which in turn increases the costs of claims. We pay more overall, they take profit in a different area.

Referral fee income has been hit by the Jackson reforms and the regulator is all over the add on covers that have provided a boost to profits. All in all it's a bit of a mugs game to be in unless you are a branded distributor who can live on commissions and let the underwriter worry about making some money on properly priced product.

 

[SussexHoop]

I have switched car insurance a few times, but we're insured with the Coop now, and our premium went down this year, without asking.

I was with Aviva until last weekend. Like you my renewal premium went down but I switched to Direct Line. They came in 1/3rd cheaper than Aviva (brand new customers only) plus £40 cashback via Quidco and all of a sudden Aviva look very expensive!

My building and contents is up for renewal next month and I'll probably end up doing the same. Customer loyalty counts for nothing these days.

 

[father_and_son]

This is not quite true, they may pay out more in claims than they take in premiums but they do turn a profit on selling your information. bizarrely, usually to ambulance chasing law firms, who then increase the payouts from the insurance firms by claiming for invisible injuries to persons in the vehicle not at fault. This means that the industry as a whole pay out more in claims than they take in premiums, but they do get into profit from the money from selling the info.
They also try to profit from inflating the price of a courtesy car and repairs they provide for their not at fault customer, and the other insurer pays, and as they all do it, they all end up poorer in the end, unless they are lucky enough to have less at fault drivers than the others.

The insurance industry is losing (a small amount of money) on claims versus premiums, but it is taking a profit on inflating the costs of claims to each other and selling the info which in turn increases the costs of claims. We pay more overall, they take profit in a different area.

The Combined Operating Ratio (which takes into account ALL incomes and ALL outgoings) for most insurers run somewhere between 104-110% over the long term. Meaning that despite all the additional money coming in to motor insurers in fees & kickbacks, they still lose between 4 and 10% of their turnover.


All of the things you mention are categorised as Subrogation Income and, yes, it is significant (around 9% of the income received on a Motor account comes from these other sources) but it isn't enough to push any company into profit (consistently) and certainly not the whole sector.
[The money received from "ambulance chasers" in a referral fee was paid for by another motor insurer and so they are a net drain on the industry.]

Much like Price Optimisation and Price Comparison Sites, the Accident Management Companies are an unwanted parasite in the industry, but because of legislation, one we are stuck with and because of competition, one we have to accommodate.

The issue for insurers is that the AMCs were getting people's details and becoming involved in the claim process - inflating the costs of claims. Even the breakdown companies sent to recover your car after an accident were selling on your details! The insurance companies have had to take a "can't beat them join them" attitude for a number of years and given the fee is going to be paid, it's better to be paid to the insurer (and therefore not pushing up premiums) than disappear out of the equation altogether.

I'm not in Motor any more (I moved jobs in January and and now look after Personal Accident insurance in a number of countries other than just the UK) but, as I was leaving, all the main insurers were working hard to cut the Accident Management Companies out by contacting the customer and engaging in the claims process as quickly as possible. "Owning" the claim in this was can save ~£900 off the cost of a claim, which in turn reduces all customers' prices.
However, as with so much in today's society, so many people just see what's in it for them without seeing the consequences... Soft tissue damage (whiplash) is extremely difficult to diagnose other than from the patient saying it hurts - so its also extremely difficult to refute the claim...

Treating Whiplash costs the NHS £8 million pounds a year in consultation fees.

Payments on Whiplash claims cost the insurance industry over £2 billion a year.

No wonder your insurance company thinks you are lying!

 

[KZNSeagull]

I do not know what it is like in the UK, but I had my car and house insured by the same insurance company here. I made a claim on the house insurance and the next thing I know, my car insurance has gone up 40%. Buggers. Needless to say, I took out a policy with another company and will never insure 2 things via the same company again.

 

[father_and_son]

I'd imagine to make money at it you'd probably have to do something like run admin and management services for brands who didn't want to administrate their own insurance. Perhaps you could then add a comparison site, maybe branded with a comedy animal or something before pricing said administrated firms so they always came top of your comparison site. Simples!

The one you quote is a long way from the worst in the industry... another is owned by a large insurer and rather than add their graphs as pictures in their presentations to City Analysts, they used to embed Excel objects. Doesn't take much in the way of technical skill to extract the entire Excel object and see everything in the spreadsheet, not just the graph.

Shocking then to discover documentary evidence that data was being passed from the Comparison Site back to the parent insurer, including all the other insurers' prices, allowing them to undercut their competitors rather perfectly.


They use pdf documents now!

 

[Balders]

Insurers own Brokers. Brokers own Accident Management Companies. Brokers own Law Firms. Insurers own Accident Management Companies. Insurers own Aggregators. Brokers invest in Aggregators. Insurers sell data, Brokers sell data, Aggregators sell data. Brokers set up Underwriting Agencies. Where will it all end..........

 

[father_and_son]

Thanks for that, it's a good explanation. I sincerely hope I can stay in the TRCP bracket from now on.

Next time your insurance is due, send me a pm - I can talk you through a number of entirely legal and acceptable ways to minimise the cost of your insurance that won't get you in trouble.

I could probably anecdotally tell you of a number of the ways that OTHER people have used to reduce the costs that are less than legitimate but extremely difficult for the insurer to find you out.

 

[gregbrighton]

I just got House Contents for £28. Result!

 

[Chinman3000]

I've spent 20+ years in the industry, the bulk of which has been spent pricing Motor insurance (Cars, Bikes, Vans & Fleets). I may occasionally be a bit of a c*nt but also don't consider myself "sub human scum".

Personally I don't agree with "Price Optimisation" (which includes the practice of charging existing customers more) but the reality is that if someone else is doing it, you have to otherwise you will have no business.


The specific example used by the OP is about customer segmentation and to respond to [MENTION=242]Hornblower[/MENTION] 's example of buying a newspaper, EXACTLY the same segmentation and price differentiation happens for newspapers too (its just done in a different way).


In the simplest case there are two kinds of people...

1. Time rich, cash poor TRCP
2. Cash rich, time poor CRTP

The first group will put the time and effort in to seeking out the best price. They will shop around, they will look for deals, they collect/use their 'clubcard' points, (THEY WILL CUT OUT THE COUPONS THAT LET YOU BUY THE PAPER FOR 50P RATHER THAN A POUND).

The second group are the opposite. They will pay a premium on something to avoid the hassle of having to shop around to save a nominal amount. (All the studies I have done - and its a lot - is that for Motor Insurance, this figure starts at £50 and goes up from there - most people do not to want to do the paperwork etc for less than that saving).


All of your personal details (age, gender, location, the car you drive, buying pattern, claiming pattern, no of changes you've made, etc etc) will be used to put you into one or the other category (there will be lots of categories but I'm simplifying things). This will determine whether the insurance company (OR NEWSPAPER PUBLISHER or supermarket or whoever) thinks you will pay more to avoid the hassle or not. If you are expected to be in the "Cash Rich, Time Poor" category then £50 will be added to your price (or whatever the load is... usually a percentage, again I'm simplifying) and the extra is used to discount someone deemed to be in the "Time Rich, Cash Poor" category.
When you call up, you've proven that you have been put in the wrong category and they will change your price!


Every time you have ever cut a coupon out of a magazine/newspaper and used it in the supermarket you are proving that you are TRCP.
Every time you have bought something in the supermarket that had a coupon offer available somewhere, you are proving you are CRTP.


To put this into context and I cannot emphasise this enough to anyone who thinks we are "sub human scum"...

THE MOTOR INSURANCE INDUSTRY MAKES MONEY, ON AVERAGE, JUST ONE YEAR IN SEVEN. IN ALL OF THE SIX OTHER YEARS, THEY LOSE MONEY!

Motor insurance is a "gateway" to the customer - because its pretty much the only compulsory insurance most people buy. The company is ONLY interested in you because they believe they can sell something else to you that is profitable!

(*There are a few motor only insurers out their who operate in niche markets where they can make money, but they still lose money regularly unless they are really good!)

Justifying how and why insurance companies are conning people out of money through their legal loopholes doesnt really cut it with me. And as for they only make money on average 1 year out of 7 - it sounds like bullshit to me but even if true it doesnt change anything.

Unlike Balders who seems to agree that the industry is screwed, you seem to be actively defending it through some mis-guided loyalty.

I am not having a pop at you or anyone personally here who works in the industry or otherwise, it is the ethos, industry practice, morals & ethics I despise.

 

[Balders]

Just thought I'd add for a little bit of sympathy for Insurers (not Brokers or Aggregators - always been an Insurer at heart, but have worked "both sides of the fence") historically Insurers to a degree, relied on Investment Income to balance the books - it's a great industry for cashflow, money paid up in advance with no overheads, no need for overdrafts or to invest in or carry stock etc. However over the last few years, that avenue is not returning anything due to shockingly low interest rates.

 

[Hornblower]

Next time your insurance is due, send me a pm - I can talk you through a number of entirely legal and acceptable ways to minimise the cost of your insurance that won't get you in trouble.

I could probably anecdotally tell you of a number of the ways that OTHER people have used to reduce the costs that are less than legitimate but extremely difficult for the insurer to find you out.

Thanks, I may well take you up on that.

 

[Guinness Boy]

The one you quote is a long way from the worst in the industry... another is owned by a large insurer and rather than add their graphs as pictures in their presentations to City Analysts, they used to embed Excel objects. Doesn't take much in the way of technical skill to extract the entire Excel object and see everything in the spreadsheet, not just the graph.

Shocking then to discover documentary evidence that data was being passed from the Comparison Site back to the parent insurer, including all the other insurers' prices, allowing them to undercut their competitors rather perfectly.


They use pdf documents now!

Doesn't surprise me at all. No different to a supermarket always discounting its own sausages really. I actually quite admire the Peterborough company, they've found a way to make money on what you correctly say is a very tight industry.

 

[Herr Tubthumper]

The Combined Operating Ratio (which takes into account ALL incomes and ALL outgoings) for most insurers run somewhere between 104-110% over the long term. Meaning that despite all the additional money coming in to motor insurers in fees & kickbacks, they still lose between 4 and 10% of their turnover.


All of the things you mention are categorised as Subrogation Income and, yes, it is significant (around 9% of the income received on a Motor account comes from these other sources) but it isn't enough to push any company into profit (consistently) and certainly not the whole sector.
[The money received from "ambulance chasers" in a referral fee was paid for by another motor insurer and so they are a net drain on the industry.]

Much like Price Optimisation and Price Comparison Sites, the Accident Management Companies are an unwanted parasite in the industry, but because of legislation, one we are stuck with and because of competition, one we have to accommodate.

The issue for insurers is that the AMCs were getting people's details and becoming involved in the claim process - inflating the costs of claims. Even the breakdown companies sent to recover your car after an accident were selling on your details! The insurance companies have had to take a "can't beat them join them" attitude for a number of years and given the fee is going to be paid, it's better to be paid to the insurer (and therefore not pushing up premiums) than disappear out of the equation altogether.

I'm not in Motor any more (I moved jobs in January and and now look after Personal Accident insurance in a number of countries other than just the UK) but, as I was leaving, all the main insurers were working hard to cut the Accident Management Companies out by contacting the customer and engaging in the claims process as quickly as possible. "Owning" the claim in this was can save ~£900 off the cost of a claim, which in turn reduces all customers' prices.
However, as with so much in today's society, so many people just see what's in it for them without seeing the consequences... Soft tissue damage (whiplash) is extremely difficult to diagnose other than from the patient saying it hurts - so its also extremely difficult to refute the claim...

Treating Whiplash costs the NHS £8 million pounds a year in consultation fees.

Payments on Whiplash claims cost the insurance industry over £2 billion a year.

No wonder your insurance company thinks you are lying!

I think I'd sack my underwriter/actuary if I was regularly paying out more than I took in.

 

[crookie]

Always get a quote from your existing insurer as a new customer enquiry, then you'll get an idea of what they should actually be quoting you for renewal. Useful ammo to have. My existing insurer was cheapest at renewal on a comparison site, so I 'switched' to the same insurer and saved about 20% !!!

 

[Balders]

I think I'd sack my underwriter/actuary if I was regularly paying out more than I took in.

That would be very true in the good old days when Underwriters actually underwrote business and Actuaries were listened to. Unfortunately these days, and it's just my humble opinion based on experience, that most Insurance businesses are now run by the Marketing Dept and the Finance Dept who wouldn't know what an Underwriter or an Actuary was ;-)