Insurance quotes are as clear as mud: The industry is failing to delivery on promises to explain quotes

Radical transparency: How insurtechs are capturing marketing share by sharing pricing logic with customers 

We all know how it works. You want to insure your car. You request a few quotes. And then spend the next hour marvelling at the apparent randomness of it.

For this article, we asked for a quote for a Peugeot 307, with a full no-claims bonus. Identical details were used for all insurers and twenty quotes were returned. Prices ranged from £219 at Aviva, £712 from the RAC, and the top quote was an eye-watering £1,409 from Acorn. That last quote does not even include personal accident cover, included as a courtesy in the cheapest quote.

How were these numbers derived? We’ll never know, but a bit of detective work unearths a few clues. Age matters, obviously, but job description does too. A professional cricketer will pay 5x the premium of an advertising assistant. Magicians, perhaps due to their impoverished profession, pay on average £148. An astronomer £300.

The industry is aware this isn’t optimal. Mark Thomas, founder of Compare My Insurance, says: “In relation to commercial insurance, the industry could be a lot more transparent. A small number of insurers have started providing a more detailed breakdown of how the premium was calculated but the vast majority still only provide a single cost to insure.” He says niches such as health and life insurance are better than most – there is a drive to break quotes down so clients can see how their answers alter price, but adds: “I strongly believe that insurers must improve how they interact with clients.”

A few pioneers are trying to shake up the industry. Hippo provides homeowners insurance with clear, upfront pricing and no hidden fees. Their online platform allows customers to easily customise coverage options and see the cost implications as the options change.

In life insurance, Cavendish Online, a broker, charges a one-time fee of £25 for online life insurance quotes. It’s a simple way to reassure customers that they aren’t shelling out for hidden fees or backhanders. Independent Financial Advisors were once riddled with accusations of recommended products for kickbacks. The practice was outlawed, but customer trust remains at rock bottom.

In car insurance, ByMiles provides cover by the mile. A form of transparency – but again, the quote is tailored to the user, without a great deal of information as to why the price differs. These are outliers. Overwhelmingly this is an industry where quotes feel as random as lottery

There are, alas, good reasons why insurers are so slow to improve. The industry runs on ancient software. It’s an open secret in the industry that it’s a steam engine sector in the age of AI. There are innovators changing this: Akur8 is a pricing and transparency engine, used by the likes of AXA and Munich Re, which claims 10x faster deployment, 10% better predictive power, and transparent pricing to customers. In the health industry, Digital Owl is a platform which can read medical records using AI, and prioritises clarity to end users. It uses generative AI to create bespoke reports.

There’s also the mathematical nature of quote calculation. Insurance is complex. Quotes are generated using concepts such as Generalised Linear Models, optimal binning, and Friedman’s H-statistic. It’s often not easy to say to a consumer that their profession added an extra £20 on a quote. There are multiple moving parts to any actuarial calculation – and breaking this down for consumers may be difficult.

Searching for a car insurance quote

The industry is moving slowly. The EU’s Corporate Sustainability Reporting Directive requires detailed environmental reporting. Carbon emissions and waste must be tracked. But no such obligation exists to explain to consumers how their insurance is calculated. The result is a lack of trust. A survey of 2,000 British drivers commissioned by Love2Shop, a price comparison site, reveals seven in ten do not trust their insurer to offer them the best price. Half said they were suspicious of hidden clauses. Cheaper quotes are cheaper for a reason – but consumers cannot figure out how they’ll get stung.

A report for the Chartered Institute of Insurance on the topic of trust stated: “Many consumers and small businesses don’t trust the insurance industry. You may be thinking that’s a statement of the bleeding obvious – but while we’ve known this for years it has been an intractable problem.” More than four-fifths of customers say they would ignore their insurer’s recommendations to update their payment plan – a wholesale rejection of the insurer as a reliable source of information.

The Financial Conduct Authority’s paper, ‘Treating Customers Fairly’ – a guide to management information, published in 2007, demands clear pricing for insurance. Policyholders must not be misled, and they must understand the coverage. But there is no requirement to explain the mechanics of a quote. Acorn will not reveal why their quote for a knackered Peugeot 307 is six times the cost of another insurer and costs more than the book value of the vehicle.

And it’s more than money at stake. Research by BBC Verify found car quotes were a third more expensive for areas with the biggest ethnic minority populations, even after correcting for crime and road accidents. The Citizens Advice organisation called this an “ethnicity penalty”. A spokesperson for the Association of British Insurers admitted they could not account for the difference, other than to state ethnicity is not used to calculate premiums. A spokesperson said: “However, we recognise that these and other similar findings raise an important public policy debate.”

Insurers need to be more transparent. Consumers are promised clarity, which never arrives. We would not dine at a restaurant which sold steaks at six times the price to different consumers, with no reason offered. It would be viewed as absurd. The insurance industry needs to deliver on the promise of transparency, and fast.

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