How the motor insurance market adapts to changes in customers' needs

Abstract

The primary objective of compulsory third party liability motor insurance is that of protecting those who suffer loss, injury or damage in accidents involving motor vehicles. In Malta, motor insurance is the most commonly underwritten type of insurance and currently. Three levels of cover are generally offered; Third Party Only, Third Party Fire and Theft and Comprehensive, which all cover third party liability. Young drivers are considered as a particularly bad risk for motor underwriters, and when looking at statistics, one can see that they are involved in 43% of road traffic accidents in Malta. Many insurance companies, therefore, impose a loading on their premiums, limit cover to Third Party Only basis, increase the policy excesses or else refuse to insure young drivers altogether. Motor insurers continuously try to cater for the needs of different segments of the motor insurance market. Some have recently introduced policy variants such as Guaranteed Asset Protection, Boosh and Motormax, which are Pay-As-You-Go (PAYG); an insurance policy that charges the customer depending on the distance travelled and Pay-How You-Drive (PHYD) insurance; this, charges the customer depending on the driving behaviour. Both make use of telematics technology. Both Boosh and Motormax are targeted specifically to younger drivers. However, this is not the case abroad as telematics-based insurance is also popular with older drivers. By monitoring the driving behaviour of their policyholders and imposing penalties for over speeding, sudden braking and late night driving, insurers would thus be reducing the frequency and severity of claims. These types of policies have only been just introduced in Malta and one cannot measure their success accurately until some time has passed. GAP Insurance is also very popular abroad, however in Malta it is not yet the case. It provides cover over and above the market value of the car when it is written off or stolen, so the policyholder would be able to purchase a similar car. Motor insurance premiums and excesses for young drivers tend to be on the high side as the claims they generate, are more frequent and more severe. PAYG and PHYD present one solution to tackle the problem and thus help keeping insurance premiums low. Furthermore, many face the problem of inadequate compensation when their vehicle is declared as a total loss as they underestimate the effect of depreciation; this problem is effectively tackled by GAP Insurance. This dissertation will analyse the introduction of the products in Malta, the perception of the public and how competing insurance companies have reacted to these products. It will also assess the future prospects of these products in Malta. As part of the research, questionnaires will be handed out to current, potential and non-eligible customers. Interviews will be carried out to the insurers involved so as to go into more detail and to increase the accuracy of the research. This dissertation will thus analyse the new trends in the motor insurance market and the associated benefits and drawbacks. Moreover, it will explore the possibility of introducing such products to other segments of the market. Additionally, the responses of other insurance companies will be analysed, and, in conclusion, this thesis will try and predict whether these products will prove to be popular and a success in the Maltese market.