Under the bonnet of non-annualised motor insurance policies

Savvy gym goers already opt for Pay-As-You-Go (PAYG) memberships, so time spent on the sofa rather than the treadmill, is a little more guilt-free. That ‘down time’ is less likely to be spent watching streaming services as the number of UK households subscribing to these products fell for the first time last spring[i] . Motor insurance is not immune to this shift away from annual commitments. At LexisNexis Risk Solutions we have seen increasing interest from consumers for more flexible motor insurance and insurance providers are now hungry for data to help them respond to that demand.

In recent research, two-thirds of drivers surveyed agreed that the rising cost of living has made owning a car more challenging[ii].  Add to this the expansion of the gig economy, which more than quadrupled in delivery/driving in the period 2019-21[iii], as well as increased environmental awareness, and it makes sense that car use is changing. Indeed, 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[iv]. 

Whether it’s temporary policies which offer cover for several hours or weeks, subscription policies designed to meet specific needs and renewed on a rolling monthly basis,or pay as you go (PAYG) policies, which might let a policyholder drive another car or use a vehicle for work, NAPs all offer the additional flexibility and potential cost savings today’s motorists want and need.

To build a greater understanding of consumer awareness, use and experience of NAPs, LexisNexis Risk Solutions teamed up with Consumer Intelligence to question more than 2000 motorists on their appetite for NAPs now and going forward.

We found that awareness of NAPs is already high as more than seven out of ten consumers (71%) are familiar with NAPs for motor insurance and 22% have heard of these policies. What’s more, while the majority of those had used a NAP to either borrow or test-drive a car, we also discovered that some enjoyed the greater flexibility a NAP offered them, as they were using their own car less.

With regard to who is using NAPs, our research highlighted that NAP users are more likely to be younger, have higher incomes, have children in their households and live in metropolitan areas. They are also more likely to adopt new technology quickly than non-users. It is also worth noting that 12% of NAP users are gig economy drivers for ridesharing services. Amongst the non-users of NAPs only 1% were gig economy drivers.

The good news for insurance providers is that NAP users are happy with the products and levels of service on offer. 80% of the motorists we surveyed who have bought NAPs are satisfied with the experience and almost seven out of ten consider these policies to be fairly priced. Indeed, 29% of consumers who have applied for a NAP during the past two years have done so at least twice and over half of the motorists who had used a NAP product said they were likely to do so again.

The growth opportunities became even more evident when we spoke to motorists who have never used this type of policy.  More than a third said that they would be interested in buying a NAP in the next twelve months, with a PAYG policy being their preferred option.

Some insurance providers might fear that growing consumer demand for flexible NAPs threatens the steady income stream offered by annualised policies. Yet 13% of drivers are asking employers for more flexible working options and a quarter are cutting all non-essential commutes[v]. So it seems sensible that as society adapts to different ways of working, the insurance sector keeps pace to offer a greater choice of products and cover options. 

Real-time granular data on the vehicle and the policyholder is the key to designing, marketing, underwriting and pricing NAPS, whilst ensuring that the customer journey remains smooth, and fraud is minimised. Motor insurance providers already have years of experience using data to enrich their understanding of a vehicle and policyholder at point of quote to support pricing decisions and already appreciate the importance of contributory data on No Claims Discount history, policy history, quote and claim to make a fair assessment of risk in annualised policies. The next logical step is to bring the same level of data enrichment into NAPs.

While this won’t be difficult as much of the data needed is already available for ingesting at the point of quote, the missing piece in the data jigsaw is NAP specific policy history data. Creating a market wide contributory database will require industry collaboration but as stated above, this is far from a new concept in insurance. In fact, from our discussions with the market, there is already a keen appetite to share data for the benefit of consumers and insurance providers alike, to take NAPs to the next level. 

Sources:

[i] https://www.ofcom.org.uk/news-centre/2022/streaming-revolution-stretches-tv-generation-gap

[ii] https://www.forbes.com/uk/advisor/car-insurance/driven-off-the-road/

[iii] https://www.tuc.org.uk/news/gig-economy-workforce-england-and-wales-has-almost-tripled-last-five-years-new-tuc-research

[iv] https://www.gov.uk/government/statistical-data-sets/nts01-average-number-of-trips-made-and-distance-travelled

[v] https://www.forbes.com/uk/advisor/car-insurance/driven-off-the-road/