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Personal Lines Insurance
Friday, June 1, 2007
One size don’t fit all……

Mutual & Federal thinks the ‘one price fits all’ strategy in personal lines insurance is on its way out.

Short term insurance, in principle, is supposed to spread the losses of the few across the premiums of the many. In theory no one knows who in the pool will have to claim in a given year so the fear factor gets them to buy in. Trouble is the careful risks, and clients who take especial care over their possessions may see little reason to pay high premiums to cover losses of the incompetent, irresponsible or just plain lazy.
Keeping good risks in the overall pool is, however, essential for the business model to work.
Merrick Oeschger, Executive GM, Personal Business, at the company notes that, put simply, “The more you say, the less you pay.” Meaning that, with a fuller profile of a prospective insured the greater is the potential for savings on policy premiums. “A pricing swing of 70% is not unknown,” he notes. “On occasion it can reach 100%.”
Unfortunately, the revolution in individual risk modelling and pricing has been so quiet, that most consumers have yet to cotton on..
“But we’re moving toward the risk ‘pool’ of one individual,” he observes. “The process is driven by data, reams of it that we process through extremely sophisticated software.
“Favourable detail on the individual can therefore translate into favourable pricing. For the low-risk consumer, the devil is not in the details; the discount is in the details.”
Details that can affect pricing include:
• Age, gender, lifestyle, marital status, occupation;
• Home location, residence in a secure estate, home security provisions;
• Type of car, its power-to-weight ratio, locally manufactured vehicle or an import, the marque’s theft or hijack propensity, length of time with a driver’s licence; and, of course,
• Claims experience.

Consumer behaviour may have to change if individuals wish to exploit savings implicit in the emerging era of customised personal insurance.
Mr Oeschger explains, “Prudent individuals should be eager to put themselves into the optimum risk category. Therefore, don’t give details of your lifestyle grudgingly; sell yourself instead.
  “Perfunctory filling in of forms won’t do the trick. Volunteer more information. And make full use of the section of the form marked ‘Other’. The more lifestyle detail you give, the easier it is for underwriters to create accurate risk profiles.”
Entry into the most desirable risk categories may mean significant savings, but consumers have an obligation to play fair.
Adds Mr Oeschger, “The picture you paint must be accurate. If circumstances change, you are obliged to inform your broker or insurer.
“You cannot continue to benefit from favourable pricing structures if you re-invent yourself and take on different risk characteristics, for instance. If you commit to certain behaviours, you must follow through. For example, if you promise to lock your jewellery and coin collection in your home safe, then you must do so.
“Saying ‘Oops I forgot’ is not a convincing response from a supposedly prudent individual who may have enjoyed pricing benefits for years. Obtain a cost saving by all means, but play fair.”

Copyright © Insurance Times and Investments® Vol:20.5 1st June, 2007
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