I was recently invited to speak at the 25th birthday conference of the Bulgarian Insurance Association in Sofia. The request came from my colleague, Thanos Petropoulos, who runs Mazars Bulgaria. As an integrated, international partnership, opportunities to work with our colleagues across borders is one of the most enjoyable parts of working at Mazars.
This event gave me the chance to reflect on changes in road safety and motor insurance since the beginning of my career. It is only by having to reflect on your experience for others that you are really able to consider the scale of changes over the years.
Described by others as a ‘veteran’ actuary, my career started in 1977 – the time of ‘The Sweeney’ car chases on TV and the Green Cross Code road safety campaign. Fast forward to 2017 and despite more – and faster – cars on the road in the UK, both car and road safety are improving. Road safety statistics have been reported extensively for the entirety of my career so the trends are very clear.
My roles within the insurance industry have required me to take an interest in these trends. Since 1977, I have held a mix of strategic leadership and advisory roles including CEO of insurance group, Ecclesiastical. Now Partner and Head of Financial Services at Mazars UK, I am the General Insurance Board (GI) Chair and have Motor Insurance Repair Research Centre (MIRRC) and Motor Insurers’ Bureau (MIB) experience.
The Institute and Faculty of Actuaries (IFoA) working parties monitor data and provide regular insights. These tell me that both Third Party Injury (TPI) and Accidental Damage/Third Party Damage AD/TPD – frequency is generally improving but the severity is worse – partly because people drive faster if they believe their car is safer. Medical costs and the size of court pay-outs are increasing. Added to this, the cost of repairs is much higher. Perhaps, given fuel is now relatively cheap, people drive many more kilometres than previously? Certainly, fuel costs over the years seem to be ‘inversely’ correlated with miles driven.
So, what does this mean in macro-economic terms? What is the increasing cost? Well, I estimate we are taking up more medical time – both in terms of hospital space and medical staff costs, engaging more lawyers and car repair outlets. Also, the continuous pursuit of safer roads and cars requires significant investment.
Yet, this is only the monetary value. What of the value we place on lost days and lost productivity at work, not to mention the emotional costs of road accidents and the value of life itself?
Perhaps, it’s now time we should focus on the economic benefits of road safety?
Benefits of digitisation
I’d say digitisation has been one of the biggest changes the industry has seen since 1977. This has brought the very definition of insurance into sharp focus: particularly the issues of capital – smoothing financials at an individual or company level is the most salient point of help when things go wrong (often very badly).
Insurance as an incentive
Set against this background, I’d add that insurance has an increasingly important role to play in education and research. Think education and immediately the issues of safe speed limits, seatbelts and mobile phone use spring to mind.
These issues are universal but it is right that each country determines for itself how to best compensate road accident victims. The disparities are enormous, if you consider the gap in cost per injury claim ranges from around 4,500 Euros to 25,000 Euros and that this then varies by country. Imagine trying to harmonise this.
Perhaps, a more effective approach would be to pay indemnity costs, assisting clients financially rather than lawyers.
All things considered, I still believe insurance can act as a real incentive for safer driving. Why? There are a few reasons:
- Bonus-malus can create a hunger for bonus
- Pricing at a realistic risk level can separate lower (safer) risks from other risks and also offer lower premiums
- A move from a Motor Third Party Liability (MTPL) insurance and CASCO (the international organisation of standardisation) model to a more comprehensive one is beneficial – one which considers insuring the driver in a given car only (as opposed to insuring the vehicle)
- Maximising digital innovation to provide solutions – for example, developing apps which encourage good driving and using telematics to reward better driving. Cuvva is a UK app that allows the purchase of very short term cover, for example, while picking up children from school in a different vehicle.
- New technology could also be used to mitigate claims costs, for instance ,seeking medical help as rapidly as possible once an accident has taken place
- Becoming more creative about the use of rating factors and having true ‘risk based’ pricing
So my Bulgarian colleagues heard how insurance cost is increasing in the UK even though safety is improving through improved driver behaviour. This illustrates the vital role of education and research and I firmly believe insurers can be a lynchpin in this.
It’s up to all insurers, wherever we’re based in the world, to learn from the claims we handle, mitigate the losses and ensure genuine claimants are treated well.
Insurance should be an incentive not an impediment to better road safety – and that’s as relevant in Britain as it is in Bulgaria.