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Motor Insurance
Sunday, April 1, 2007
First for good drivers

Spreading risks is an essential part of insurance so that the misfortunes of the few can be shared by the many. Well, up to a point.

People who are just plain casual about their security, or who drive like idiots don’t really deserve to have their losses covered ad nauseam by the conscientious. Why should those who take almost obsessive precautions to ensure their safety and security pay ‘exorbitant premiums’ to cover the backs of the careless? Well, again, up to a point.
The true principals of insurance can only really be applied in, for want of a better way of putting it, an homogenous society: one that enjoys common moral values, goals and ideals. For this reason underwriters tend to see where they can identify good risk pools and rate them separately. To some extent, through the benefits of keen marketing they can also maximise their profits and encourage good clients to buy into insurance, so expanding the risk pool for less cost.
In this light, underwriters from time to time launch new products, say, for women motor insureds, for those in retirement, or for professionals in a bid to gain market share, but through acquiring better risks.
Recently, First Link Insurance Brokers launched a new product that enables “good, experienced motorists to end the system of de-facto insurance subsidies to high-risk drivers.”
Called First Value motor insurance policy it is offered “only to those with a driving and claims record that demonstrates their discipline and care on the roads.”
By redefining the risk pool and only grouping good drivers together, the broker can offer big price advantages to the motorist who drives safely and sensibly.
As First Link Personal Lines Managing Director Aryeh Klein points out, “Mass motor insurance products create a disguised subsidy across a wide risk pool. In effect, the general level of premiums means the good driver ends up meeting part of the cost created by the bad driver.
“First Value is not intended for the mass market. It is a niche product with strict focus on good, experienced drivers who are rewarded for their defensive driving ability through a significantly reduced premium.”
The product is underwritten by Regent Insurance.
Before qualifying for access to this special risk category, factors such as the driver’s age, licence age and previous claims experience are taken into consideration.
“The traditional approach to risk and premium structures gives little incentive to drivers who show a sense of responsibility to their fellow-road users,” adds Mr Klein. “When good and bad drivers are grouped together with no attempt at differentiation, the socially responsible road user pays the same premium as the individual with a poor driving record.”
The alternative, as is often the case, is that the good risks simply don’t buy insurance, leaving the underwriter with a deteriorating risk pool.

Copyright © Insurance Times and Investments® Vol:20.3 1st April, 2007
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