Spotlight: Motor - How will data underpin the motor market’s response to new pricing practices?

The hunger for data has never been higher, whether it is to digitally validate a no claims discount at point of quote or to factor for the risk of cancellation.

However, a survey conducted by Post into motor pricing practices and trends also highlighted how the market could be underestimating the impact of the new pricing rules due to come in later this year. There is still a good level of uncertainty regarding the new pricing, auto-renewal rules and reporting requirements. These are to be confirmed following publication of the Financial Conduct Authority policy statement on general insurance pricing practices due shortly.

As it stands, the market will have until the end of September to implement the systems and controls and product governance rules, and until the end of 2021 for the pricing and auto-renewal remedies and the reporting requirements.

High-impact statement

While just over one-third of the motor insurance providers surveyed (34%) anticipate that there will be a high impact from the FCA final policy statement on general insurance pricing practices and close to 8% felt the impact would be very high, the majority do not expect huge change – in fact 38% felt fairly neutral. And although 59.5% think that pricing on the whole will rise, 48% felt their pricing will stay the same.

One interesting insight was the fact that 78% of the motor insurance providers responding to the survey do not expect to change their motor insurance renewal engagement strategies.

What we can be certain about is that ‘knowing your customer’ is going to take on new meaning in response to the changes to pricing practices. Insurance providers must understand more about a new or existing customer to be able to offer products that are suitable and achieve fair value.

Insurance providers will need a single customer view to understand where and when customers are interacting with their organisation. They will need to develop consistent pricing strategies – not only is the execution of pricing through the different distribution strategies key, but also across the product portfolio and customer journey. And insurance providers will need to provide evidence of constantly reviewing their pricing and underwriting practices and looking for ways to further enhance product fair value.

The first step is building a holistic view of existing customers by leveraging a unique identifier that connects existing customer data to provide a single customer view. This enables insurance providers to gain a deeper understanding of their existing customer base by linking together what may have been previously held in disparate customer databases – claims, marketing, quotes, different lines of business – or customer databases that come part and parcel of a business merger or acquisition.

Approaching policy renewal, there will be existing customers that shop around and request new business quotes – doing exactly what is being encouraged. So it is important that insurance providers can identify these customers to support pricing consistency and retention strategies. This is where having a unique identifier for each customer brings further value as it enables existing policyholders to be flagged during the quote process.

As the FCA rules encourage renewal pricing strategies to be consistent with current new business pricing, it is more important than ever to use data enrichment for renewal quotes that aligns with the data enrichment used to price new business quotes.

By the same token, knowing your customer is just as important for new customers as existing policyholders. The most sophisticated data enrichment solutions allow risk assessment at individual, asset, household and postcode level with intelligence delivered on all individuals associated with the quote in a single transaction, for example additional drivers and joint policyholders in addition to the proposer or main driver.

The associated risks for vehicles being insured also need to be understood and considered. Vehicle data is currently the most common type of data enrichment at new business, followed by claims. At renewal, claims data becomes the top data source. This is just the tip of the iceberg in the depth and breadth of data now accessible to the market.

Through one gateway to a host of data enrichment datasets, during the quote process, due diligence checks can be performed. At the same time, information supplied by customers can be validated and a raft of additional insights used for more accurate point of quote pricing such as ownership and MOT history checks, advanced driver assistance systems data at a Vehicle Identification Number level or the flood risk for an individual address. In time, this will expand to include market wide claims data, first in home followed by motor.

Quote behaviour data

Bringing a further dimension to the understanding of risk and enabling insurance providers to offer the most suitable products at the right price, is quote behaviour data. Understanding customer shopping is becoming increasingly important under the new rules and can connect related quotes – even where a key detail such as address or vehicle are different. They record a customer’s quote volumes, they highlight where customers have made a change between quotes and they provide a deeper understanding of when a customer is shopping in relation to their policy start date – or renewal date for existing policyholders.

Understanding the customer throughout the lifecycle of their policy will be absolutely critical in this new regulatory environment – not just at the point of acquisition but at renewal. The market as a whole will need to know everything they can so they can tailor their specific offerings to the customer, based on a holistic understanding of their risk. Data and insight will underpin that capability.”

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