Insurers' obsession with statistcs stops them making human decisions

Insurance companies want to know everything about us these days. When you’re buying a car insurance policy, you might think it’s fair enough that they want to know what car you own and how many miles you drive. But why do they also want to know what job you do and whether you’ve lived in the UK all your life?

In an underwriter’s perfect world, they’d ask us about everything from our shoe size to our favourite box sets.  Their theory is that if they know everything about you, they can predict with a decent amount of certainty how often you might be likely to need to make a claim on your policy, and what kind of claim it might be. And of course that means they can, in theory, work out more accurately how much to charge you.

Lies, damn lies etc

We’ve all heard the one about lies, damn lies and statistics – and it’s a phrase that underwriters would do well to pin to their office walls. But of course while statistics can be incredibly misleading – and their disciples use them in a way that often delivers unfair outcomes for insurance customers – it’s easy to see how underwriters get hooked on them.

If you’ve been involved in a car accident that wasn’t your fault, you are statistically more likely to be involved in another one. At first, that seems counterintuitive. But it’s a fact.

The reason for that is because in most cases, car accidents are not completely one person’s fault. In many instances, both people involved are at fault to some degree.

If someone drives into the back of you, five witnesses may testify that the accident was the other driver’s fault – and their insurer will pick up the bill. But if the incident could be replayed in high definition and from every angle, perhaps the truth would be that you could also have prevented the incident happening if you had checked your rear view mirror more often, and gone a bit easier on the brakes.

And with no way of working out how exactly how much of an accident was your fault, insurers simply rely on the bigger picture stats – dumping you in the pot with other drivers who have been involved in non-fault accidents. They then add insult to injury by putting your premium up.

Technically right, morally wrong 

It’s a grossly unfair outcome for the driver who is involved in an accident in which they are an entirely innocent party.

But insurers neglect to add any human interpretation to the stats. Either you fit in the accident box or the no accident box. There’s rarely any room for the box that’s labelled “He was in an accident but it definitely wasn’t his fault”.

If insurers could ask us what our favourite TV show was, they would surely use this to price our insurance as well. And I bet there be some weird correlation between people who watch Game of Thrones and frequency of claims 

Thankfully, there are some boundaries. For some years now, insurers have not been allowed to use your sex to price your policy. And they’re not allowed to use your sexuality, or to discriminate against people with disabilities.

In just about every other area, the only thing that stops insurers asking more questions is that they worry they might scare customers off and prevent them from actually buying the policy.

Is the insurer the first person you'd call when you've got good news? 

Once they’ve collected all the data they can get, insurers will offer you a price – but only conditional on the fact that your circumstances don’t change over the coming year.

If anything major happens in your life, ideally, they’d like to be the next person you tell after you’ve called your mother.

In the back of most policy documents, there’s a long list of things that your insurer expects you to keep them abreast of. For example, motor insurers want to know if you change your job. And if you don’t tell them, they reserve the right to reject a claim if you later need to make on. 

Most insurers also say they need to know if you’ve been convicted of a crime. And presumably, in most cases, if you rang them up to let them know, they’d tell you that they didn’t want to insure you anymore and would send you on your way – which doesn’t seem very fair.

If my brother gets charged with GBH after losing his temper in a brawl, why should his home insurer need to know? If his house burns down the next week, the insurer should still be there for him – his criminal record has no bearing on his home insurance.

Have your cake, but don't eat it

What’s really going on is that insurers are trying to have their cake and eat it. When you fill out your insurance questionnaire, you’re offered a price for the year, and barring any game changers, they should be prepared to honour your policy for the year ahead. But instead they want to have the chance to reprice and reassess you every time something changes. 

If you give up your job as an office manager, and become a travelling salesman, it’s reasonable for your car insurer to want to know that you’ll now be driving 50,000 miles a year rather than 5,000. 

But when it comes to moving house - or just changing the type of office job you do - we’ve all got more things on our mind than calling our car insurer. And we shouldn’t need to be left worrying that they might desert us if we forget to call.

Sadly, we can’t always be sure of that – and my advice is to be on your guard. If you’re changing jobs, moving house, getting a lodger, getting building work done, changing your name – or changing anything significant in your life – it’s worth pausing to consider calling your insurer.

The insult to injury is that once you’ve got in touch, they may charge you a fee, as well as an extra premium. Or they may say they don’t want to insure you any more. But it’s better than finding out that you’re not covered when you come to make a claim. That can be catastrophic.

This article was first published in the Daily Telegraph on 14 May 2016