Insurance Premiums to Stabilize, but Risk-Based System to Introduce New Challenges

Strategic Insights -

Despite a trend of insurance premiums stabilizing in the coming months, householders in certain areas may face further increases as insurers introduce risk-based systems to differentiate between good and bad risks. The Association of Accident Insurers (AA) reports that average prices among its panel of insurers are now stabilizing, with contents cover increasing by 3% compared to last year, but expected to decrease to below the 1992 level by next month.

Key Takeaways:

  • Insurers are introducing sophisticated systems for differentiating between policyholders of different ages, living in different areas, and in different types of houses.
  • The new system will allow insurers to charge higher premiums for households in high-risk areas, potentially exacerbating the problem of "cherry picking" the best risks.
  • Norwich Union, Sun Alliance, and General Accident are among the insurers that have already begun implementing refined postcode-based systems for buildings and contents policies.
  • Homeowners may be able to reduce premiums by switching insurers, but certain groups may fare poorly under the new system.
  • Insurers like Norwich Union and Sun Alliance are marrying their postcode information to policyholders' ages and other factors to determine premiums.
  • The new system may mean new premium shocks for some householders, but it is likely that certain groups will fare badly across the industry.

Statistics:

  • Average prices among AA's panel of insurers are now stabilizing.
  • Contents cover is now about 3% higher than last year, but expected to decrease to below 1992 levels by next month.
  • Building premiums have already started to fall, and by the end of 1994 could be 25% lower than at the end of 1993.
  • There are 2,900 'outward' postcodes and 9,000 'sector' codes, according to the Royal Mail.
  • An estimated 1.7 million codes cover 25 million addresses.

Sources:

  • AA Insurance (no date)
  • The Times (no date)
  • Royal Mail (no date)
  • Norwich Union (no date)
  • Sun Alliance (no date)
  • General Accident (no date)