The motor insurance sector has become increasingly sophisticated in its use of data to determine risk. But there is one big gap in knowledge that has so far, remained unresolved and that is the risk associated with named drivers and quote manipulation. It is a vital gap in knowledge that leaves the sector prone to fraud and customers at risk of their policy being invalidated.
Considering around half of all motor insurance policies have at least one additional driver*, who in theory could be driving the vehicle at least 50% of the time, a finer differentiation of risk for the named driver could be hugely beneficial.
Therefore we set out to determine if additional information about named drivers would truly help with differentiating the risk of a policy. At LexisNexis Risk Solutions we analysed policies with named drivers using information from proprietary data sources covering policy history, public information and quote history.
Analysis of the LexisNexis Risk Solutions Motor Policy Database indicates that up to half of named drivers have prior policy history as a policyholder**.Furthermore, historical policy information linked to these named drivers, is correlated with the loss ratio on the “current” policy.
For example, named drivers who as previous policyholders, have been associated with their vehicles for over three years have a 25% lower loss ratio.
In addition, having negative public records (such as CCJs or bankruptcy) is usually associated with a higher propensity to claim. Our analysis indicated that policies where a named driver had a CCJ and the policyholder didn’t, had a 17% higher loss ratio.
‘Fronting’ is the practice of someone insuring a car as a main policyholder and listing the de facto main driver of the car as a named driver, in a bid to reduce the premium. This illegal practice is often only discovered when there is a claim, leading to the policy being cancelled and punitive actions against the people involved.
Fronting can also result in a large burden of debt for the consumer and huge admin costs to the insurance provider.
Compared to any other age group, 17-20*** year olds are nearly twice as likely to manipulate the details they provide for an insurance quote. However, recent research on consumer attitudes to data manipulation emphasise the scale of the challenge: seven out of ten motorists**** think it is acceptable to manipulate the information they provide when obtaining a quote for motor insurance from a comparison site.
In addition, looking at parents with children that are driving, 41% say they would consider fronting to save their child money.
By looking at when the named driver on a quote also appeared as the policyholder on other quotes for the same vehicle within a certain period, insurance providers now have a clear indicator of possible fronting during the quoting process. This also extends to other forms of data manipulation such as changes to dates of birth, changes to declared claims information, for example, for both the policyholder and the named driver.
Quote manipulation is an indicator of higher claims risk so knowing, at point of quote that the information provided for that quote has been changed and to what degree, enables insurance providers to make more informed decisions about the proposed risk. Overall this helps to reduce their exposure to fraud and enable actuaries to model pricing based on a more holistic view of risk.
*Informed Quotes platform, via research from Quote Intelligence
**Information via the LexisNexis Policy History Motor database
***Informed Quotes platform, via research from Quote Intelligence
**** LexisNexis Risk Solutions carried out an anonymous survey, the Policy Renewal and Insurance Shopping Study, 23 January to 5 February 2018. Data collection: web survey using managed online panel as a sample. The sample was 1,500 consumers who have insurance on the vehicle they drive most often, who are equally or solely responsible for insurance decisions, and who purchased motor insurance within the past 18 months.
For more insights from these research results download the LexisNexis Risk Solutions white paper ‘Finding (and Building) Loyalty in the Motor Insurance Market’.
Follow the link to the LexisNexis Risk Solutions website to find out more about how we support insurance providers.