Advisory Column: Industry response to ‘Male and under-30 – Is the insurance risk overblown?’
Last week's article produced a 673-word response from Peter Levy.
He wears two important hats. The first is managing director of British Caribbean Insurance Company, one of the island's eight non-life or general insurance providers. He is also the public face of the $34.6 billion non-life segment of the $77.1 billion insurance industry.
His official industry title is vice-president - general insurance for the Insurance Association of Jamaica. He was referred to in last week's column as "an official of the insurance lobby".
Given the criticisms that I made about The Gleaner's March 3 article, which discussed what Mr Levy admitted was a "significant increase" being imposed on men under 30 years old, it is proposed to use today's column to publish his reactions to what I wrote.
Among the topics he discusses are: competition, industry regulation, factors that affect premiums, access to the authorities' traffic tickets database, and, in very broad terms, the 2010-2014 operating results of motor insurers.
Levy: "Your recent commentary on the issue of young drivers, especially male drivers, failed to address the question that prompted it. Your reader asked whether you could recommend insurers who may be willing to insure his or her 22-year-old son at a 'reasonable cost'.
"The fact is that the eight motor insurers in the market adopt a variety of underwriting and pricing approaches. The reader's best bet is to canvas the market to find the provider that best matches her needs.
"There were, though, some interesting ideas touched on by your column on which I'd like to share my perspective.
"First, you imply that the reduction in motor insurance providers from 11 to eight means fewer choices for the consumer. While that may seem true on the surface, I think that what matters to the customer isn't so much the number of providers, but rather the number of products, features, price, and payment options available. It may well be the case that there is more real choice available now than previously. The only way to tell would be to analyse the range of product and price offerings over the years.
"It might also be useful to ask: what are the reasons that the number of providers has fallen from 11 to eight? Is the increased level of regulation and, in particular, mandatory capital requirements - Jamaica has some of the most conservative capital standards in the world - a factor in making the industry less attractive? Is that in the interest of the consumer? No one wants a situation where insurance companies are at risk of failing, but what is the correct place to draw the line between security and customer choice?
"You say that age and sex are 'blunt proxies' for assessing risk, and you are right - insurance companies generalise using statistical data, and unless there is a statistically valid way to differentiate an individual, he or she will be treated as part of the group to which they belong. Bear in mind though that if insurers did not use these proxies, the level of cross-subsidy would likely be even greater. For instance 55-year-olds would pay more than they do now, since they'd be treated the same as 21-year-olds, despite being (as a group) considerably less likely to have an accident.
"And let's remember also that these proxies are not applied only to increase premiums - there are price reductions based on age and sex, too.
"Instead of the blunt proxies of age and sex, we would ideally use primary driving behaviours as the criteria for assessing risk. Even before discussing the advent of telematics - devices that record driving behaviour and transmit that data to the insurance company's database - insurance companies in Jamaica would benefit from being able to use traffic ticketing records as a basis for pricing risk. The Insurance Association of Jamaica has asked the Government for access to this type of public information and we would love you to add your respected voice to this effort.
"I expect that the nascent telematics or usage-based insurance risk assessment approaches will one day become the primary risk assessment and pricing tools. These tools are in the early adoption stage even in developed economies, and will no doubt start to make inroads in our market in the near future.
"After a period of severe underwriting losses in the mid- to late 2000s, the industry has reported four consecutive years of motor underwriting profits. It hasn't been nearly enough to make up for the earlier losses - over 10 years the net loss is an inflation-adjusted $7.5b - but it is movement in the right direction. At least some of that recovery is due to the insurers taking a hard look at their portfolios and coming up with risk selection and pricing strategies that more fairly allocate higher premiums to the groups that comprise higher risks."
My comments: Mr Levy did not provide any data on the four consecutive years of underwriting profit or offer any information about how data - conventional and unconventional - combined with technology were being used by the industry to improve risk assessment instead of the "blunt proxies".
The pace of adoption of monitoring devices in motor vehicles for car insurance is no longer in the budding stage. It is growing rapidly.
Nine million devices were installed in Europe and North America in 2014. That number is forecast to increase to 15 million units this year.
On the life insurance front: a pilot scheme in America found that analysis of a potential customer's less conventional data, such as online behaviour and spending habits, was as effective in identifying potential health risks as a medical examination including blood and
n Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: email@example.com