In-depth: Picking up speed
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From apps to autonomous vehicles, the taxi and fleet markets are going through big changes and brokers are well placed to take advantage of these growing sectors
The demand for insurance in both the taxi and the fleet markets is motoring on at a solid speed, despite challenges thrown at the sector.
In addition, rates have been driven up for the first time in two years largely because of the impact of the Ogden (discount) rate change earlier this year.
Jon Land, head of broking at Romero Insurance Brokers, speculates that fleet underwriters had wanted to increase rates for “quite a long time”, adding that the Ogden decision gave them “an opportunity to make this move and to increase rates across the board”.
He argues that providers are unlikely to put rates back down if the proposed changes to how the Ogden rate is set go through, however, insurers disagree and say prices would drop again with RSA commercial motor underwriting director Ian Kemp expecting a “sharp tail-off”.
Another reason for the increasing rates is claims inflation driven largely by first party accidental damage claims. This in turn is related to new technology in vehicles, including different driver assistant systems.
“One of the great things about these systems is that they reduce the frequency of claims across the market, but the severity when we see them is higher because of the cost of parts,” explains Kemp.
Ins and outs
The commercial motor market is described as “hugely competitive” and, despite demand for insurance remaining strong, the sector has seen a number of providers pulling out or reducing their capacity in recent years.
According to experts this is a result of the cyclical nature of insurance, with several stating it’s natural that providers dive into sectors they have previously pulled away from when they see others achieving good results. Similarly, people exit markets when profitability dips again.
However, while some providers have pulled out of certain markets, a number of new managing general agents (MGA) have entered, including a new taxi-focused MGA, Anjuna Underwriting, launched by the Bollington Group in October this year.
Bollington underwriting manager Simon Rhoades observes that one reason that capacity providers are dipping in and out is that MGAs are relatively easy to set up, but not all of them have got robust underwriting models.
Brokers understand much better the ramifications of the unrated markets potentially for themselves in the event of a claim
Jon Land
“Therefore after a 12 to 18-month period they realise that actually it’s not as profitable as they thought it was going to be,” he continues.
In addition, the implementation of Solvency II last year led to a slight shake-up as a number of insurers looked over their business lines and exited unprofitable markets. A few unrated off-shore providers also ceased writing new business (including Enterprise Insurance which went into liquidation).
According to Rhoades, there has been a slight shift in mind set in the sector as a result of this. While Bollington’s Anjuna places taxi business with two capacity providers – one rated UK composite insurer and one unrated Danish insurer – the firm is now “more careful” about the insurance partners it chooses.
Unrated risk
“We do a lot more due diligence around looking at individual solvency and we make clients aware that insurers are unrated when they are,” he highlights. “Therefore they have the choice whether to take that increased risk or not.”
Meanwhile, Land states that Romero never uses unrated providers and chooses to place business with traditional UK insurers in order to “have the financial security of the market we’re dealing with”.
He adds that while unrated markets are occasionally put forward to clients by other brokers, there are enough good options for placing business out there and he sees no major use of unrated capacity in the broker sector.
“Brokers understand much better the ramifications of the unrated markets potentially for themselves in the event of a claim and I don’t think anyone could argue anymore that they didn’t understand those problems that are associated with it,” Land continues.
In addition to capacity, the taxi and fleet markets have also seen a change in customer behaviour lately, with clients becoming more fluid and willing to move between providers.
For taxi drivers this is powered by high premiums and relatively low salaries, which makes them price conscious. Rhoades notes that quote volumes remain “relatively healthy” as a result of this, while the growth in the number of taxis is fairly minimal.
“If you’ve got the rates and the products building a book of business is quite easy at the moment,” he continues, but adds that the number of aggregators in the market means business will move around easily, resulting in a “play on price”.
Similarly in fleet, Land describes the sector as “more volatile” than before, forcing brokers to market business to test the price, which he says wasn’t the case twelve months ago when customers were more comfortable with the level of rates.
In his view underwriting standards in fleet have been dropping lately and he notes that going on price year after year is an unsustainable way to conduct business.
[Brokers] can see where the market is growing and make sure they’ve got products and propositions and capacity to service those areas
Ian Kemp
Opportunity knocks
With so many clients being price centric, brokers can add real value to insurers. RSA’s Kemp notes that an increasing number of vehicles in the fleet market are operating on lease type arrangements, thus moving away from the personal lines model, which he says opens up opportunities for brokers.
The online shopping trend and rise of delivery companies such as Ocado and Amazon has also resulted in increasing demand coming from small and medium sized goods carrying vehicles and vans.
“This is an angle the brokers should be looking at,” Kemp adds. “They can see where the market is growing and make sure they’ve got products and propositions and capacity to service those areas.”
On the taxi side, Edward Hill, product manager for taxi at ERS, highlights the importance for brokers to understand the sector and its clients and proactively having dialogue with customers throughout the year.
“A lot of them will now offer telematics or some sort of risk management,” he adds. “Brokers are being very proactive and we’re working alongside them.”
Brokers are encouraged to do risk validations and have fraud procedures in place as well as monitoring telematics devices, increasing the use of dashboard cameras and working with clients to ensure they realise the value of insurance rather than just finding the cheapest price.
Technology take-up
“Information is key and we try to give as much as we can to underwriters in a format they can work with,” Land notes.
However, technological advances have had a slow take-up in the commercial motor market. Telematics has been on the rise in personal lines for the last few years, particularly among younger drivers. But this technology has not had the same success in the commercial space and it gets a mixed reaction among players in this part of the sector.
Kemp observes: “There may well be niches where it can work equally successfully [as in personal lines] but we haven’t seen any real evidence of people leveraging that at all.”
Meanwhile, Hill states that ERS is “monitoring it closely”, but adds that the provider is instead focusing on more non-standard business where telematics does not have the same benefits.
Companies in both the fleet and taxi markets can also be reluctant to try this approach as some drivers find the technology slightly intrusive.
But Land states that he would like to see telematics more widely used in fleets, noting that some clients are looking to potentially start using it, “but it’s a big learning curve to get them to do it”.
Driverless cars
In the 2017 Autumn Budget Chancellor of the Exchequer Philip Hammond announced that the government would increase its support and funding for driverless vehicles to ensure that Britain is “at the forefront of the technological revolution”.
Driverless vehicles are currently being tested on roads in the UK and insurance industry experts are noticing a change of pace in the development of this technology.
According to Caroline Coates, partner and head of insurance sector and automotive at law firm DWF, we could be seeing driverless vehicles being used more widely on UK roads in the early 2020s.
It is still unclear exactly how the market will change, but specialists expect a move away from car ownership to people sharing vehicles and fleets of lorries needing only one driver.
Vincent Branch, chief executive for Accelerate at XL Catlin, highlights that the insurance industry needs to understand the changing risks now as commercial clients are already considering how they can adopt this technology.
He explains that XL Catlin is actively thinking about the risks involved, noting that currently 90% of accidents are caused by human behaviour and that many of those risks will be reduced or minimised.
“But we’re going to see new risks emerge when we deploy autonomous systems,” Branch adds. “We’ll see a much stronger shift from traditional risks to specialty insurance risks, in particular product liability and cyber liability.”
We’re going to see new risks emerge when we deploy autonomous systems… We’ll see a much stronger shift from traditional risks to specialty insurance risks, in particular product liability and cyber liability
Vincent Branch
In addition, while it is likely that car manufacturers will also be offering insurance cover in the future, Lee Riley, managing director at Alps, believes this will be limited to vehicle software malfunction, which will be insufficient to cover many situations, including hacking, cybercrime and ransomware.
He asks: “How can the client protect themselves when their lorries are carrying high value goods which may attract the attention of criminal organisations?” adding: “The need for drivers to arrange additional insurance will surely remain.”
Meanwhile, Coates explains that the Automated and Electric Vehicles Bill is currently going through Parliament, which says that the insurance policy for the vehicle “will respond when the car is driving itself and the insurer has to compensate not only the injured party but also injuries to its own policyholder”.
“The bill provides a right of recovery for insurers against anybody else who was to blame,” she continues. “If there’s a system failure in the car then the insurer can go to the manufacturer and get compensation.”
While there are many insurance aspects that need to be considered before driverless cars are sold to the public, Riley highlights that brokers will still have a role to play in the distribution chain.
“Even in the current market there are few, if any, products on the market which cover every eventuality,” he states. “One of the roles of the broker will be to spot these gaps in cover and source additional products which limit the risk.”
Another emerging technology that has had more success both in taxi and fleet is dashboard cameras.
“Dashboard cameras are hugely beneficial for reducing claims and that is something that we do offer,” says Hill. “We look to our brokers to get that across to clients, but it’s optional and some taxi drivers don’t want it.”
However, the downside of these technological innovations is that unless the companies using them are invested in the products and change the company culture to embrace them, they won’t necessarily see any benefits from using them.
“Sometimes brokers will sell us all of the systems a company has in place with a view to get a better premium and we won’t see that turning into an improved or stabilised claims experience,” Kemp notes. “The times it actually makes a difference is if the culture of the organisation shifts.”
Another trend impacting the taxi market is the rise of apps like Uber. However because Uber drivers still need to be licensed in order to carry passengers experts note this has not massively changed what they do in terms of insurance cover.
“But there has been quite a large increase in part-time drivers where people are doing one thing and then also taxi as an additional income stream,” Rhoades concludes. “Traditionally people just wanted to insure full-time taxi drivers while that’s not necessarily the market now.”
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