Is short-term insurance at an inflexion point?  

Is short-term insurance at an inflexion point?  

In a world where short-term insurance is gaining momentum, we hear from Andrew Ponter, Insurance Product Manager at LexisNexis Risk Solutions, UK and Ireland on whether short-term insurance is at an inflexion point.

Many of us have used temporary insurance at one point or another – perhaps to test drive a car or to borrow the vehicle of a friend or family for a specific trip. In fact, based on LexisNexis Risk Solutions Insurance research with Consumer Intelligence, approximately 5.4 million motorists have used these products in the past year. This is a corner of the market that could expand rapidly given recent and longer-term changes in our motoring habits. The only barrier is a pure lack of data on Non-Annualised Policies – or NAPs. Who has used them? Why? What is their claims history? It’s going to take industry collaboration to help solve that challenge.   

We know how hungry the market is for NAPs data. We also know that data sharing in No Claims Discount, quote behaviour, policy history and claims has become essential in delivering a market wide view of the industry’s experience with an individual. So, where sharing NAPs data is concerned, we’re already halfway there. Where there’s a will there’s a way. 

The insurance industry’s appetite for NAPs data needs little explaining. After all, the number of car trips and the average distances travelled have fallen steadily over the last two decades according to the latest National Travel Survey. More recently we have seen use car use alter due to more of us working from home, people are considering how they can save motoring costs during the cost-of-living crisis, then there’s the environmental impact of motoring.   

‘Pay as you go’ is becoming the ‘norm’ in many aspects of our lives and while car ownership is still part of our culture and essential for many people in rural locations, in places where alternatives exist and parking has become costly and problematic, it is perhaps not surprising that some people may be considering reducing a two-car household to one or giving up the car altogether. This seems even more logical considering that a typical car is parked 95% of the time. Even before the pandemic arrived, PwC predicted back in 2018 that nearly a third of kilometres driven will involve some form of shared vehicle arrangement by 2030.  

Insurance clearly needs to evolve to respond to these changing needs. When we asked consumers what they feel about NAPs, we found the interest in these products and overall awareness is high. Quite encouragingly, around 9 out of 10 people surveyed had heard of a Non-Annualised Policy – whether that’s a pay as you go type product, a subscription-based product or a temporary policy. 

What was particularly interesting was that over a third of drivers (36%) who have never previously used a NAP would be interested in buying one in the next 12 months with pay-as-you go type policies the most likely to receive take up.  

It was also valuable to understand that 81% of consumers who have used NAPs say they are likely to purchase or use one of these products again within the next 12 months. Compared to non-NAP users, they are more likely to be younger, have higher incomes, have children in their households and live in metropolitan areas.  

To move this sector of the market forward so that consumers have more choice of NAP providers, and more competition over pricing, the scarcity of data needs to be solved. Part of this will come down to applying data enrichment in the same way it is used in annualised policies so there’s more knowledge about the vehicles being insured, as well as the driving and claims history for the individual. Data enrichment at the quote stage can also help identify if fraud could be a problem – whether that’s fronting or knowing that an individual has been linked to insurance fraud in the past.   

The next stage will be the creation of contributory database of NAPs to match the insights the market already benefits from for annualised policies. 

This range of intelligence could do so much more than support pricing and underwriting – it could provide the basis for product design and marketing decisions; it could make the application process easier for customers and make claims more of a frictionless experience. 

It seems we’re at an inflection point in non-annualised insurance. Consumers want these products and insurance providers have a big opportunity to deliver them so surely the only way is up. Shared data from the market will help drive this growth and LexisNexis Risk Solutions is poised to facilitate this through a new contributory database that will deliver back far more than it takes in.  

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