Mike Ayrey

International rating comparison of motor insurances

When in Rome insure as the Romans do: There are many international differences in motor insurance. Some of them are based on cultural peculiarities.

Many of the differences in international motor insurances are simply a reflection of the length of time the market has been deregulated. Hence, the UK (deregulated in the 60s) has one of the most sophisticated rating structures, while those more recently deregulated (e.g. Hungary and Poland) still have relatively simple structures.

However, in many respects these are the most interesting markets as the picture is changing rapidly. Only a few years ago, just the car and the cover had an influence on the rate, but already we are seeing additional factors such as "Bonus/Malus" and "Age of driver" becoming commonplace. This trend towards a more complicated structure looks set to continue.

In Germany, too, we have seen a rapid development in the last few years. The market for motor third-party liability was only deregulated in 1994. Hence factors like "Garaging", "Gender" and "Age of vehicle" have been introduced since that time. Indeed when we first looked at such a comparison a few years ago, there was a significant difference between the sophistication of the rating in Germany and the UK. Now that difference has been largely eroded.

Better quality of data leads to fine-tuned products

These trends in Germany perhaps give an indication of likely future trends in developing markets. Improved computer technology and better quality of data makes it much easier to analyse trends in factors and consider possible new ones. The more successful companies are likely to be those that grasp the opportunity to steal an edge on their competitors!

At times, you do wonder where it will end. In many countries, the permutation of all possible rating factors already gives a total number of cells that far exceeds the total number of cars on the roads! Is the fundamental concept of insurance as a pooling of risk being eroded here?

Local legislation can also have an impact. The EU has for some time been considering legislation to outlaw discrimination according to gender. While many countries are fiercely opposed to this, some (such as Sweden) have already adapted local legislation accordingly.

Previously, companies had begun to introduce gender as a factor. If imposed, ironically it may lead to further complication as insurers seek substitute factors. For example, in place of gender, we may well see the use of occupation being extended, with young housewives and secretaries receiving discounts. Naturally, there can also be househusbands and male secretaries but these would be the lucky minorities!

Local legislation also helps explain why in many countries "Conviction details" are not used. In Germany, too, I suspect that someone who has incurred a number of speeding penalties is far more likely to be involved in an accident, but it is difficult for insurers to obtain this information due to data protection laws. Interestingly though, in recent times it has started to be used by a few insurers in relation to young drivers. Terms are ameliorated if the driver can demonstrate that he has not suffered any convictions - and hence provides the information voluntarily. Perhaps, therefore, this will lead to more use of this factor.

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