Sellers are smiling but insurance providers must keep watch on the rise in asset values

James Burton, senior director of product management, LexisNexis Risk Solutions

There is no doubting that it is a seller’s market in the U.K., with average house prices 10.4% higher in February 2022 compared to the same time last year[i]. Meanwhile, second-hand cars have witnessed a 30% price increase in a year[ii] and there has been a 11.5% rise in used vehicle transactions[iii]. This all has the knock-on effect of rising claims costs for insurers. With the average amount paid for damage to policyholder’s vehicles rising 59% between 2015 and 2020[iv] and household insurance providers facing the double blow of climbing property values and more extreme weather events, it’s become vital that insurance providers have access to real-time data on the assets they are insuring, at the point of quote.

So, what is causing such massive inflation in asset values and is it going to last? A mismatch between supply and demand in the housing market; supply chain issues causing a shortage of certain building materials and the anticipated 54% rise in the energy price cap[v] increasing the cost of those materials are conspiring to increase home repair costs as well as home values. Add to this the increasing scale and regularity of extreme weather events, including floods and storms. The number of claims from weather losses almost doubled in 2020 vs 2019 by 89%.[vi]

Meanwhile, in the motor insurance market, it is the semiconductor shortage that has caused the imbalance in supply and demand in the car and commercial vehicle market, and the consequent increase in used vehicle values. As factories closed during the pandemic, supply ran short and vehicle manufacturers fought for highly sought-after semiconductor chips, alongside manufacturers of gaming consoles and home working tech. This led to the massive reduction in new car manufacture and knock-on impact on the used vehicle market.

Yet there were other contributors to the rise in cost of motor claims. While the pandemic lead to a decline in motor claims overall and fraud[vii], evidence shows that while cars were off the road, opportunistic thieves were making the most of the situation. Indeed, data collected by the ABI shows that theft from vehicles and theft of vehicles remained at a consistent level from 2019. There were 61,000 theft claims in 2019 and 60,000 in 2020 – notably, these are the highest figures recorded to date.

Knowing more about the risk at quote means insurance providers can price more accurately based on the likelihood of a claim arising and the cost to settle that claim. The value of the asset and the cost to repair or replace is one part of the jigsaw in making that assessment but clearly with so much movement in the values of homes, vehicles and materials, keeping pace with these changes is key.

Fortunately, data innovations continue apace in the insurance market to anticipate and solve pain points such as this.  In motor, insurance providers can now benefit from streamlined access to vehicle valuations based on data from classified car ads, at the point of quote. This data is trusted by the Financial Ombudsman Service[viii], which uses it when settling vehicle claims disputes. Alongside valuations, insurance providers can also access mileage information and MOT status to build a more detailed picture of the value of the vehicle.

Data on the presence and performance of Advanced Driver Assistance Systems at a Vehicle Identification Number (VIN) level is a further unique innovation for the insurance market, bringing an extra layer of granularity to help insurance providers understand future claims risks and costs.

In home, data enrichment solutions now exist that combine multiple predictive attributes for an individual address from a variety of property characteristics. From rebuild cost to square footage and listed-building status to roof type, this data goes far beyond the information traditionally used or requested in the quote process, helping ensure a greater level of precision.

Vitally, data such as this, alongside additional data on the individual and the address flows into the quote process from one platform, streamlining how insurance providers access this data and deliver quotes to customers.

Asset-based data can also be used to pre-populate application forms, improving data accuracy, reducing customer friction and further speeding the delivery of quotes.

As we head into a period of price inflation, customers are going to pay increasing heed to service levels. A data platform that can help smooth the quote process, reduce referrals and consequentially hassle for the policyholder will help insurance providers deliver insurance cover that responds to the value of the risk presented today, not last week, last month, or last year and provide a fair and transparent price in the process.

[i] https://www.rightmove.co.uk/news/house-price-index/

[ii] https://inews.co.uk/inews-lifestyle/money/uks-best-selling-used-cars-why-you-will-pay-53-more-for-a-second-hand-astra-this-year-1508119

[iii] https://www.smmt.co.uk/category/vehicle-data/used-car-sales-data/

[iv] https://www.abi.org.uk/news/news-articles/2022/02/2021-motor-premium-tracker/ Between 2015 and 2020, the average amount paid for damage to policyholders’ vehicles increased by 59%

[v] https://commonslibrary.parliament.uk/research-briefings/cbp-9461/

[vi] Source: ABI

[vii] Source: ABI

[viii] https://www.data.cazoo.co.uk/solutions/insurance

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