Motor Conference Speech – 2 December 2014
Welcome to largest ever ABI Motor Conference. We are grateful to DAC Beachcroft our partners, our 45 speakers and you, our 370 attendees for your time here. What we may lack in our less than stimulating title 'The Motor Market 2015-20' we will more than make up for in the lively and engaging quality of debate as we range over the subjects we think will shape a critical next five years for everyone involved in the motor market, whether as a consumer or a supplier.
As you do so, I wanted to plant in your minds four thoughts that strike me as important for the insurance industry to confront and engage with.
1. Our reputation is in our own hands
Now at first blush, this may seem an odd thing to say about an industry that is often at arms length from its customers because of comparator websites and intermediated sales and is often blamed for issues like young driver premiums that are basically outside its control. But bear with me.
As this year's high profile winter floods reminded us in a positive way, how effectively and easily we pay claims to the law abiding honest majority is a critical part of public perception of insurers. For Motor customers as much as any other type of customer, how straightforwardly a claim is settled remains the key moment of truth for them, their family and immediate circle, especially in such a highly competitive, some would say over-supplied market like Motor insurance. And that of course is why insurers need to continue to play a key role in cleaning up a claims industry that adds unnecessary costs onto consumers’ premiums. Only by operating in system that is right will consumers begin to increase their trust in our industry. That is why insurers agreed on the RTA Code, which supports customers when making a personal injury claim.
How we talk about and use rating factors is also a reputational issue that is in our hands. While each firm’s calibration of rating factors and pricing is clearly commercially sensitive, insurers' use of factors such as age, occupation, location and previous claims history is known but not fully understood. This is the worst of all worlds. As an industry we need to be clear in our own minds about which rating factors stand up to scrutiny - and then do a much better job of explaining and defending them. Otherwise we run the risk that every rating factor is portrayed as a sinister use of data against the consumer, rather than something which helps an individual get a price that is fair for the type of risks they pose.
To use of rating factors, I would add loyalty. How loyal are we as insurers to customers who want to be loyal? Not always, as we know. Equally, how loyal are customers ignoring high quality products at reasonable prices in favour of whoever provides the lowest possible quote in a five minute search on a comparator website? Ultimately, we have to wrestle with this rather than blame customers and seek to build the trust, transparency and business models needed to both retain more customers and gain their higher opinion in doing so.
And in the modern world, transparency is more vital to reputation than ever. For a business often accused of abusing asymmetries of information, it is more important than ever that we demonstrate our comfort within a digital world in which everything is open unless there is a good reason for it not to be. That is why the ABI wrote to the FCA in July encouraging it to consider regulating renewal pricing statements so that last year's price is clearly put alongside the renewal quote. This is a good example of insurers engaging constructively to ask for a consumer-friendly measure to be enabled and I hope when the FCA has completed its current behaviour research it will be able to take this forward.
This followed the launch of the Motor Premium tracker in February which serves as a sound example of how the industry is increasing transparency to Government, regulators and most importantly consumers, in terms of the average premiums actually paid (rather than quoted) by consumers.
2. Political and Regulatory Risk
But if reputation is in our hands, we face formidable external political and regulatory challenges that also affect our market and customers. We have a close general election ahead in the UK, the outcome of which is anyone's guess but where the agenda will very clearly continue to focus, in part, on consumer issues with which the public can identify but which do not cost politicians any money to talk about fixing. We also have three devolved governments within the UK with increased powers to legislate. As we have seen in Northern Ireland's adoption of aspects of Graduated Driver Licensing, this can be a positive. But overall, it makes it a challenge - as does coalition politics if it continues - to make sense of political impulses and how decisions are made and implemented. We also have new regulators in the PRA, FCA, CMA and EIOPA with a lively focus on both capital and conduct in both the UK and EU.
Given these variables, I don't think anyone can make any accurate predications about what could happen. Certainly having spent ten years in politics earlier in my career would make me warier than bolder about doing so. But I would flag two points.
Firstly, it is not a given in the UK that we don't have tariff pricing, rating factors banned by legislation or other political constraints on how we underwrite or sell. Plenty of other countries have all or some of the above and the ECJ Test Achats ruling in 2011 banned gender in underwriting. So we must never take it as a given that we have a relatively free market in which to operate; this is based on a series of political permissions that have to be earned, not taken for granted.
Secondly, we have to be ever more mindful of the political and regulatory risk posed by exclusion. We all know that as our use of data becomes ever more precise and interactive, it will enable risk selection and pricing that is far more sophisticated than is current practice. Motor is a compulsory product but affordability and availability for higher risk customers will come increasingly under the spotlight in a digital environment that creates 'have-nots' as well as 'haves'. How many speeches by politicians lauding the potential of telematics have actually considered its downsides for those previously covered by larger risk pools?
This can only mean one thing; engaging more with the Parliaments and Governments of the UK. 'Leaning in' as Sheryl Sandberg refers to it.
Actually, the industry has been 'leaning in' with this Government since 2010 and as a result was able to encourage the LASPO reforms, saw the Government cut the ridiculously high legal fees for low-value bodily injury claims through the Portal, saw referral fees banned, saw the price of medico-legal reports fixed and incorporated into Civil Procedure Rules and now a series of reforms to get independent medical reports produced by randomly allocated and accredited doctors through on the Medco system. If we add to this the law banning solicitors from offering inducements in PI cases and further action on insurance fraud by introducing a “gross exaggeration” test, this adds up to a decent package of measures for one Parliament, albeit not one passed with clear cross-party support. This demonstrates the value of getting stuck in, even when it is impossible to get all the reform needed in one go. For its part, the industry has stood by its public commitment to pass on savings to consumers through reduced car insurance premiums, which are down 14% since the beginning of 2012, albeit with some scepticism that this will be maintained.
There is a huge amount still to do, not least because RTA bodily injury claims into the Portal are back to their pre-LASPO levels. We need to lean in more with whoever is in power after the next election to demonstrate the value to customers of increasing the Small Claims Track Limit to at least £5,000 so it can return to handling well over 50% of PI claims as it did when the £1,000 limit was introduced in 1991. We need to continue to argue for a rebalanced system to rein in the CMCs, simplify Whiplash categories and ensure access to justice does not continue to get abused by fraudsters and scammers. It is a national disgrace that we have a justice system so routinely abused by a minority of people making fraudulent and exaggerated personal injury claims at the expense of the honest majority who would never dream of doing so. We need to continue to be fearless in making this argument - and in seeking allies and cross party support to do so. The industry is keeping up its side of the bargain, by investing £200 million towards combatting fraud and investing in IFED.
Finally, we have to keep up the battle on safer roads. The failure of the Government to deliver a Green Paper on Young Drivers - a promise made by the Transport Secretary at this conference in March last year - is a reminder how easily politicians can be swayed by talk of telematics and other innovations away from decisions that require leadership and hard choices. The overall number of road traffic accidents may be falling but the utter devastation caused by the needless death and maiming of young people in cars they have barely learnt to drive is not something we should step away from morally or simply to keep in with the government of the day.
In doing this, of course, we have to speak with one voice. That's our job at the ABI but it is also the role of the major insurance providers, brokers and industry partners. If we don't, we end up expending vast amounts of time and effort as we all did on the CMA investigation, only to see our lack of unity enable the CMA to duck the difficult decisions on credit hire. We should learn from that experience and take care not to repeat it.
Finally - and most excitingly - we must wrestle with the future. And not the 'what' but the 'how'. Because the future is already here; a large part of today's conference has been shaped and influenced by concepts that were once thought of as distant challenges but are now having a profound effect on the industry.
Amid the talk today and elsewhere of active safety technology, telemetric data permissions and autonomous vehicles, let us keep our focus on two areas. i) How can we take our customers with us so they understand the insurance they need for the new types of car they are responsible for? II) How can we ensure the market continues to serve all types of customer, all of whom have confidence in their insurers to treat their data with sensitivity and fairness?
So a huge amount of food for thought and a superb line of speakers to engage with throughout the day. The free ABI Motor Conference app that Sian alluded to earlier will enable you to engage appropriately so I encourage you all to download and use it. This isn't a school assembly where you are here to be talked at, it is a gathering of professionals which should have its own dynamism and focus.
Because let us make no mistake, we are on the cusp of a new era with tremendously exciting potential and a fair few risks to go with it too. Just over 100 years ago, the advent of the motor car symbolised the dawning of the modern 20th century world with all its possibilities. The general insurance industry - then focused heavily on fire and commercial risk - rose to the challenge and developed products that enabled the motor market to eventually reach people of all income and status.
At the beginning of the 21st century, our challenge is now similar; to embrace the future, to wrestle with its risks and opportunities and to keep a united focus on the issues that hinder our ability to serve customers. I hope today's conference plays a part in that process and that together we rise to the challenge.