Even without the pandemic, Kennedy noted that the regulatory reforms sweeping the insurance industry, between the FCA’s ban on the general insurance price march and Department of Justice reforms, each constitute substantial changes. with resounding repercussions. The fact that so many factors are all happening at the same time created a very unusual time.

Yet even though the past year has been quite hectic, he said, it has been gratifying to be able to help clients understand what each regulatory change means to them and to help them determine the different strategies needed to respond to changes in the market. For Pearson Ham, as a pricing consulting firm, this meant more than just in-depth market analysis, but also further development to generate recommendations for clients.

A key part of this has been finding new ways to share its findings, and the company used a variety of channels during the lockdown, including regular webinars exploring market updates. Addressing the company’s most recent webinar, Kennedy highlighted some of the key factors behind the current price tumult.

“We have seen massive price deflation in the auto insurance market,” he said. “At the start of last year, there had indeed been increases, after a short period of deflation towards the end of 2019. In terms of profitability, we were at a point where prices had to go up because the combined ratios were higher. 100%, so from an underwriting point of view, the industry was in deficit – the point at which the cycle usually turns.

“At the start of the year there were several storms so the prices in January / February started to increase a bit and then the pandemic hit. This caused disruption and uncertainty and prices rose until March, much of which was linked to logistical issues. We therefore saw either an increase in prices or a decrease in the quotation, not because of profitability, but rather because insurers were trying to stem the number of calls entering their centers.

When it became evident that the volume of traffic usage had significantly decreased, prices began to drop significantly across the industry. From March through the rest of the year, he said, competition intensified with the vast majority of insurers cutting their prices, but they were still not getting the volume impact they expected from this. reduction. This led to deeper price reductions, only mitigated by the reduced frequency of claims, which then started to stabilize a bit towards the end of the year.

Read more: FCA’s New Rules Against Rising General Insurance Prices Revealed

And then the FCA’s announcement on the dual pricing ban came out in September, he said, which got many vendors thinking as the question of how this ban would be funded came up. in the foreground. Based on his overview of the market, Kennedy had seen some insurers launch a sort of “land grab” before the new regulations were implemented in an attempt to attract as many new business as possible while retaining a differential between new business and renewal prices. .

“So it’s just a matter of who has the nerve to continue and how much they’re willing to invest to do it,” he said. “I would expect there to be more stabilization due to the easing of restrictions. If people start to hit the road again, the “benefits” of foreclosure will quickly be diminished. So I think there is probably more nervousness now about this level of price reduction. “

The market is currently down about 15% in terms of premiums year-over-year, he said, which is especially important in light of the regulatory change regarding pricing and the share of profit that will reap from the market once people can no longer be overcharged on renewal. The FCA’s decision is a nuanced consideration, he said, as facts show six million people are overcharged, which needs to be addressed. But then that is only about 20% of the market, which means 80% of the market is paying the right amount or is underbilled.

“The FCA has also estimated that insurers and intermediaries are investing around £ 2.3bn in acquiring new businesses,” he said, “and that cost will have to be borne by someone, for all customers, if they can’t use the renewal customer overcharging to cross-subsidize it. So in terms of fairness it’s the right thing to do, but it means everyone is going to have to pay for it and I think that’s probably something that has been a bit lacking. As for industry pricing, new business prices will have to go up to rebalance what’s happening on renewal, and it’s just a matter of when it happens.

Read more: Auto claims rise as restrictions ease, according to LV =

Pearson Ham, which closely monitors insurer requirements both in terms of understanding regulatory changes and developing strategic goals, is now in high demand by insurance companies looking for a perspective on their competition moves and the market begins to go up. No one wants to be the first to move, Kennedy said, especially in a market so reliant on comparison shopping websites and where price elasticity is so high.

A very small change in price can take an insurer from position 1 to position 10 on those sites, and if you’re outside the top four or five, you won’t be able to sell virtually anything, he said. No one wants to be in this position even if it will be for a short time, which is why there is increased demand for market price tracking. Insurers monitor the movements of competitors, target segments and, increasingly, the lifetime value of customers.

“Some people are more likely to renew than others, regardless of the price,” he said, “so you might not be able to overcharge them next year, but you still have a good chance. And it’s just a matter of how to rebalance that by hiring more people who are more likely to renew and appropriately billing people who are less likely to renew because you won’t be able to increase the margin on them later in the tenure So that sort of thing is happening now and that’s what insurers are keen to understand.

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