cgaa240: My insurer has increased my premium quote by 50% this year (give or take a pound or two). No new accidents, protected no claims (8 years equivalent), affinity scheme discount.
The call centre said it was because I have one "young" (25 next birthday) driver on the policy. This is no different from last year except that he and his brother (age nearly 28 and also on the policy) are both a year older, and he's also now in permanent employment rather than being a student. Neither of them will be driving significantly more mileage in the car than last year (and in any case I wasn't asked).
The call centre person clearly was not equipped to provide any information about why the underwriters have decided that the risk is suddenly so much higher. I can think of several possible causes:
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What I'd like to know is: first, is this trend general across the industry; and second, are there specific identifiable causes e.g. the ones I've suggested above.
Any information most helpful!
TOny
Tony,
Apologies for not seeing this post sooner! WOW, though! This is probably the first time in the history of myself visiting this forum that somebody with a question has actually produced some very sensible suggestions to what may be the problem at hand. To say the very least, I am impressed!!
? there's been a rash of under-25 accidents in the past 12 months: This is a possibility, or it could have been any sort of increase in claims relating to your geographical area or the rateable area you are currently in (ie. A, B, C, D/ 1, 2, 3 ,4 etc)
? we are paying for the insurance cost of global disasters, nothing to do with car insurance payouts: I'm particularly impressed with this suggestion! This is actually part of an extremely lengthy process called 'Reserving'. (I'll write a bit more about that as below). Relating to your point, catastrophe reserves are set up to cover a large number of individual losses arising from one event. A recent example in the UK is the flooding that occurred. We then come to 'Disaster Recovery'. Disaster recovery companies are often involved in management analysis of the effect and impact of losing rescources; identifying and evaluating operational risks that may impact operations; compiling recovery strategies; addressing specific emergency situations eg. fires, terrorist attacks; work done to return a business operation to normal (or as close as possible); trials to assess the effectiveness of plans. This provision must be paid for as any unexpected event could occur and effect a large proportion of people. It's probably also worth noting here, on the topic of 'global', that the UK industry is a a huge exporter with over half a quarter of it's net premium income being written from overseas business. The premium from overseas is circa £43.5 Billion! Any global disaster is likely to shake the stock market and, in turn, the UK industry. We could say that the UK insurance industry feels the 'tremors' of the larger earth shifts abroad - both (sometimes) physically but almost certainly financially.
? some government regulation has changed, imposing a vast increase in costs on the industry: Blimey. Another good suggestion!! Government changes in areas other than insurance can put pressure on the industry, where the UK industry accounts for 8.6% of the total worldwide premium income and is a main contributor to the UK's tax take: two-thirds of corporate capital gains tax, £2.4 billion in insurance premium tax, £1 Billion on VAT. In 2005 the UK industry paid out £160+ million per DAY in life/pension benefits, £57 Million per DAY in general insurance claims (£18.8 Million for Motor, £9.2 Million for Liability; £8.6 million to householders; £6.2 million property damage to business) -see attached links below-. Increases in compulsory insurances create more revenue, but costly provisions have to be reserved for too! For every action there is a reaction.
? insurers have abandoned the mileage-related component of premium calculations: Hmm. This has never been a major rating factor for insurance unless for specialist motor insurances such as classic/cherished vehicles. Premiums are affected by mileage but in small proportion unless the cover is increased in-line with the mileage (ie. Business use, Classes of use, High mileage in relation to higher risk occupations).
? the particular insurer has slashed the discount they offer to the affinity scheme: This is another good suggestion. In the ever world of ever increasing costs, it is sometimes beneficial for an underwriter to become stringent in applying discounts (and loadings) where applicable. Sometimes it is decided that a specific vehicle, group of people, area of risk is no longer providing adequate premiums to the pool of insurance to cover the losses should one occur. This non-profitable product is therefore tweaked or dropped, which could be one of many reasons for your unusual increase in premium.
A 50% increase in your premium is quite unusual, but I doubt there is any sinister reasoning behind it. At the end of the day, if they thought your risk profile was well presented, they would have offered you a premium that is competitive within the current market. If the underwriter of your company feel that you are no longer providing a profitable risk, taking everything as discussed above into consideration, their premium may not reflect that of the next underwriter that feels differently towards the risk. What price you lose with one insurer you gain with another, hence the MoneySupermarket comparison site!
Taking 'Reserving' forward, as it is very relevant in terms of costing and procedure: the reserving process deals with the checking of data integrity, collating historical data and the projection of claims. Claims need to be projected in order to establish the likely ultimate gross payout. The method used to project claims is the 'Loss Development Factor Method' (deals with setting out the data in the form of a table showing the development of premium, claims and incurred claims [paid and outstanding] at each point in time. The data is analysed and compared by accident or by underwriting year... it's also known as 'triangulation' if you want to be bored/confused anymore than you already are by now lol). This leads to analysing the trend and calculating the claims reserve. The claims reserve for each accident year is calculated by multiplying the cumulative claims to date for that year by the development factors for the number of years which remain undeveloped. The insurance market and the processing mechanism operating within it involve various delays, such as i) the delay betwen the incident occurring, and the notification of that claim to the insurer; ii) the delay between the notification of a claim and the settlement of that claim by the insurer. It is because of these delays that the insurance company will need to set up reserves in respect of unsettled or unnotified liabilities.... Other areas of claims reserving is 'Outstanding claims reserve', 'Incurred but noy reported (IBNR)', 'Incurred but not enough reported IBNER', equalisation reserves (required by law to smooth fluctuations in loss ratios [ratio of premiums:to:claims], unearned premium reserve and unexpired risk reserve, provision for claims handling expenses, re-opened claims reserves; and finally, as mentioned, the catastophe reserves. Note that IBNR and IBNER often carries over to the next financial year whereby claims outstanding or just occuring (December) are not yet settled and recorded as such until the next year. This is also accountable.
Relating to your specific situation it could be to do with the occupation change from a student to a higher risk occupation. Insurers have a common rating relationship where occupations are concerned but some choose to load higher than others or refuse to cover at all. There is a very good reason for this and it's core reasoning relating to high profile personalities in the vehicle, higher than average medical expenses, higher long term care expenses (Depending on the average wage for that occupation), at what time of day they might travel (Mobile Area Sales Manager), amongst many more. Can I ask what this occupation might be?
I wasn't going to butt in here, after reading the entire thread, but I was pleasantly suprised by your suggestions that I felt compelled to give it the time of day! Don't leave the forum Tony. Sometimes you have to ignore the less-than-helpful explanations and not let it get to you. There are a few out there that take pleasure in trying to wind you up, but it's probably to get their 'green bars' up (left, under screen name) and to hide the fact that the advice they are giving is a little less than useless. I think the replies given to you were 'heartfelt' rather than reckless, but I can see your point about certain comments. I believe that open minded people with a logical way of thinking are a rarity in find. Come back soon!!! (Please???! LOL)
Material that may be of some use to you for your own personal understanding:
UK Insurance Key Facts: http://www.abi.org.uk/BookShop/ResearchReports/Key%20facts%20v6.pdf
2007 Customer Impact Survey on Insurance: http://www.abi.org.uk/BookShop/ResearchReports/Industry%20Report%202006-07%20(FINAL).pdf
The Economic Value of General Insurance: http://www.abi.org.uk/Display/File/523/Full_economic_report_web_version.pdf