Are traditional motor insurance policies about to face an identity crisis?
The Coronavirus has turned all our worlds upside down, much of what we took for granted has been removed. We have seen unprecedented measures to permit essential movement of medicines and foodstuffs whilst roads are decimated of traffic. Non-essential business to business travel has become rarefied, and many cars accustomed to the daily commute have been left obsolete on driveways for weeks.
COVID-19 has shone a spotlight on UK Car Insurers as calls mount to return premium percentages or provide discounts as average mileage reduces. This argument is not without merit but is over-simplified when we consider that the vast majority of UK motor policies take no account of mileage, or when the vehicle is used. Historically, mileage-based policies belonged to classic and vintage car products.
On Board Devices
On Board Devices (OBDs) offer one solution for addressing the recent changes to vehicle usage; currently reserved for young and inexperienced drivers, OBD’s allow drivers to pay lower premiums if they agree to a mileage limit. Is now the time to bring this technology into the mainstream? Whilst the concept carries weight in the current environment, it is not without its challenges, particularly in the Fleet arena. Claims costs are imperative within the Company Fleet world, and pricing would need to be adjusted over time to reflect the profile of each user.
Pay as you go
Pay-as-you-go concepts, sometimes known as pay per mile insurance, have also gained traction over recent years. Different to short term policies, pay as you go see’s policy holders pay a base annual fee while the car is parked, and then an additional amount for each mile driven. This model could lead the way for the future of domestic car insurance policies as home-based working becomes normalised, but if your travel habits significantly increase again then you could end up paying more than a traditional policy.
OBD’s and mileage-based policies, coupled with the rise in electric vehicles and a surge in the use of bicycles as we try to reduce the risks associated with using public transport, presents a real opportunity to make lasting reductions in our carbon footprints and revolutionise the car insurance market as we know it.
Technical Consultant, Commercial Solutions, Aon UK Limited
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