Product overview: Personal lines

Insurance was the preserve of the wealthy when the first personal lines products started to emerge back in the seventeenth century. Among the early adopters were Sir Christopher Wren, Charles Dickens and Captain James Cook, who insured his home for fire while he was at sea in 1768. 

The invention of the motor car in the last nineteenth century saw insurers adapt existing policies for horse drawn vehicles, with the first policy sold in the UK in 1896. Third party cover became a legal requirement in the 1930s, with policies covering motorists for any injuries or fatalities they caused while on the roads.

Distribution shift
Little about the products has changed since the days of Wren and the Wolseley Hornet, but the way cover is distributed has fundamentally shifted in the last 40 years alone. The first shift came in 1985 when Sir Peter Wood’s Direct Line rocked up with its big red telephone with a promise to disrupt the market by cutting out the middleman.

A decade and a half later and further disruption came in the shape of the internet, with Wood now at the helm of Esure and looking to streamline sales by going online. Then came price comparison sites and predictions of the death of the personal lines broker. These proved to be unfounded as James Gearey, managing director, personal lines and protection at Covéa Insurance, explains: “There may be fewer brokers in the market now but they’re still as relevant and important as they ever were. A good broker will always adapt and survive.”

Mark Townsend, managing director for motor and home for Frontline at BGL Group, agrees. He says that delivering an omni-channel experience is a must now. “Customers want to be able to arrange cover in a variety of ways including comparison sites, affinity schemes, phone and digital voice,” he says. “You must be prepared to offer an automated service 24/7.”

Competitive market
For those prepared to move with the times and happy to focus on volume, the personal lines market offers considerable opportunities. Figures from the Association of British Insurers (ABI) show that, of the 26.5m households in the UK, 20.0m have motor insurance, 19.3m have contents insurance and a further 16.5m have buildings insurance.

Competition is fierce too. While many commercial lines markets are hardening, there’s little evidence of this in personal lines. ABI statistics point to the lowest average motor insurance premium in five years, with a fully comprehensive policy coming in at £430 in the second quarter of 2021, after a fall of £38 over the previous six months.

Pandemic claims trends
Changes in driving patterns during the pandemic are behind this, with fewer vehicles on the road meaning claims numbers fell. In 2020 the number of motor insurance claims fell by 19% according to ABI statistics, although rising repair bills meant that the amount paid out – £8.3bn – was only down by 6%.

The household market has seen similar shifts in claims as a result of Covid-19. Michael Lawrence, distribution and underwriting director for LV Broker, says that while lockdown has meant a reduction in escape of water claims as leaks and floods are picked up quickly, it’s driven an increase in accidental damage claims. “Accidental damage claims in January 2021 represented 48% of all new claims as many children were home schooled,” he explains. “It’s remained around 40% over the year so far. Pre-Covid-19, around 30% of claims were related to accidental damage.”

Motor insurance is also set to benefit from the whiplash reforms, which came into effect at the end of May 2021. These hinge on a new online portal for road traffic accident claims under £5,000 and a ban on settling whiplash claims without medical evidence and could save motorists up to £35 a year on their insurance. 

All change
There may be some positives helping to bring down claims costs but Lawrence warns that the personal lines market is still facing considerable disruption. “Not only have we got the seismic impact of Covid-19 but we’re about to adopt a very significant regulatory change,” he explains. “Our experience of these changes is limited and that can create instability or, at the very least, volatility.”

On the Covid front, while insurers have observed changes in claims, no one knows how the pandemic will affect consumer behaviour over the longer-term. This has created uncertainty but the FCA’s pricing remedy measures, which come into effect in January 2022, are likely to have an even greater influence on the market. “It’s interesting, exciting and threatening,” says Gearey. “Insurers will have to offer the same price to existing and new customers. It’s much more transparent.”

This could lead to a bit of a fallout initially as loyal customers suddenly discover the extent to which they’ve been overcharged for their cover. However, it could also lead to positives for the market. “It will have a huge impact on the market but if it’s well-executed it could help to re-establish trust between consumers and insurers,” says Townsend.   

It could also drive innovation as the focus shifts from price to value and insurers and brokers look for ways to win customer loyalty through more creative propositions.

Future products
Insurers and brokers may be grappling with the implications of this forthcoming upheaval but the pandemic has also renewed thoughts on product innovation. Townsend firmly believes that products will become more flexible. “Having a motor insurance policy that you could just pause would have been great during lockdown, and it’s definitely somewhere the market’s going,” he says.

As well as greater flexibility, technology in both vehicles and homes will also require a rethink on cover. Without a driver, insurance for autonomous vehicles will need to address the liability issue, while a connected home will require significantly more protection around cyber than today’s properties. “The way we use our homes is changing but you need to think about the customer and their needs first,” adds Townsend. “A glass of red wine is as damaging as it’s ever been.”

*Correct as of November 2021*