Derek Landau, Technical Underwriting Manager, Bryte Specialist Motor
Motor insurance is a fascinating topic that has constantly transformed and developed since it was first introduced to the public.
The motor vehicle was invented in Germany in the late 1800s as a mode of public transport. Cars in those days were slow-moving and temperamental. It may sound humorous, but there was more chance of a car blowing up than being involved in an accident, let alone causing damage to a third party.
Early underwriting and tariff systems
The underwriters of early motor insurance were part of large insurance companies, but they lacked the experience and data to calculate premiums accurately. Initially, insurers pooled their data together to create minimum premiums. This resulted in the implementation of a Tariff system using standard rating tables. These fixed pricing tables determined the premiums insurers could charge for their products.
Several rating factors were considered to establish the insurer’s exposure to the different risks. These rating factors included most of the following elements:
- Class of use (private or business)
- Area of use
- Age of driver
- Vehicle type (BHP ton group)
- Value of vehicle
- Claim-free group or no claim bonus (based on the claims experience of the driver).
Initially, most companies complied with the Tariff. However, as time passed, a few companies broke away from the Tariff system, creating rating tables based on their own statistics and claims experience.
Eventually, most insurers moved away from the tariff system and relied on their own experience, thus creating a much more competitive market.
Technological advancements
In the early years, underwriters were responsible for data analysis and rate setting—a lengthy and laborious process. As technology progressed and computers became more sophisticated, data analysis became faster and more accurate. This led to introducing actuaries into short-term insurance, now a regulatory requirement.
One of the most significant advances in motor insurance underwriting was the introduction of the ‘Black Box’. The various rating factors are captured in the black box, the data is analysed, and the required premium is instantly calculated.
Taking advantage of the speed of providing insurance quotes, several ‘aggregator’ websites are now available, where a driver can easily shop around and compare quotations from several companies.
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With the advent of Telematics, other rating factors can now be included, resulting in companies developing new and innovative products. Telematics can accurately track a driver’s behaviour behind the wheel, opening the door to assessing an individual’s driving skills. Risk factors such as speeding, harsh braking, cornering, and reckless driving are monitored in real-time. The individual’s premium may be reduced or increased based on these factors.
For example, traditionally, drivers under 25 years old would be penalised for age. In contrast, this system gives a young driver a lower premium if this is proven by driving safely.
Telematics also enables mileage monitoring, which insurers can use to establish use-based exposure and rate accordingly. Not to be forgotten is vehicle tracking and recovery’s positive impact on theft claims.
Current challenges
Motor insurers, especially transport insurers, constantly face new challenges. With the decline in rail use for goods transport, enormous pressure has been placed on road transport.
Chief among these challenges is the deterioration in road infrastructure due to increased traffic of heavy vehicles on roads not designed for this purpose, the lack and inconsistency of road maintenance and increased unrest—such as the burning of trucks—which have regrettably become regular occurrences.
Other challenges are posed by climate change and extreme weather conditions, which have devastated road infrastructure in the last few years. The increasing cost of parts and the average cost of claims is also of great concern.
Innovative solutions
Despite these challenges, rapid progress in technology and AI has presented various possible solutions, of which insurers must constantly be aware.
A prime example is the number of safety features in newly manufactured vehicles, including distance and parking sensors, cameras, radar, advanced braking systems, and more.
Moreover, smartphone technology has become an invaluable tool for insurers. Many insurers use it to make the claims process more efficient and user-friendly.
When an insured individual is involved in an accident, the insurer is notified immediately—often through an impact sensor. Assistance, such as a tow truck or ambulance, is then arranged. Additionally, policyholders can send cell phone photos of the damage to the insurers and assessors, which helps expedite the entire claims process.
Emerging trends: Electric and self-drive vehicles
The introduction of Electric Vehicles (EVs) and Hybrid vehicles, which should not be seen as just another vehicle type, is posing a new challenge for motor insurers.
Numerous differences and additional risk factors need to be researched and carefully assessed. Qualified repairers and properly equipped workshops are not readily available in South Africa, posing a challenge for repairs and maintenance. Automated and self-drive vehicles also present significant challenges, requiring insurers to adapt to address new risk factors.
Conclusion
The evolution of motor insurance continues at a lightning pace. The vital question for motor insurers is: CAN YOU KEEP UP?” …and continue to provide relevant and resilient coverage as the industry evolves.