Continuing our track record at LexisNexis Risk Solutions of delivering insurance industry insights so providers can make better decisions, we’ve been doing some work to uncover the scale and impact of policy cancellations on the sector.
New analysis of the data from the LexisNexis® Motor Policy History contributory database—representing over 90% of the motor insurance market—has identified 1.3 million policies* were cancelled in the past year, which is close to a third (32%) of all new policies written ** potentially costing the sector over £32 million***.
Recognising the impact cancellations can have on broker business, this year at the BIBA Conference we discussed how it is now possible for cancellations data to be used as a risk factor during the broker quoting process. This has the potential to save an insurance provider with circa 100,000 policies on their book between £125,000 and £375,000 each year ****, not an insignificant sum of money. This is aside from any bad debt brokers may face following a direct debit cancellation.
Insight from the LexisNexis Risk Solutions has identified:
- 800,000 individuals had three or more cancellations in the last five years
- 15% of new policies were cancelled in the first 1-15 days; 37% cancelled within 16-100 days and 48% cancelled within 101-364 days of opening the policy.
- The more cancellations an individual has, the more likely they are to cancel in future
- If an individual has a current CCJ present, there is a 64% higher risk of a policy cancellation
- Attempts at fronting have a correlation with an individual being more than twice as likely to cancel a policy.
LexisNexis Risk Solutions has estimated that 10% to 30% of the current customers on insurance providers’ books have had a cancellation in the past and present a higher risk of future cancellation, higher claims cost and potential fraud.
Using these powerful new insights, insurance providers can now understand both the risk of policy cancellation and the risk associated with customers who cancel their policies.
This will help them identify customers with the highest and lowest cancellation rates and make price adjustments based on a clearer picture of the risk.
Whether a cancellation occurs within the cooling off period, half way through the policy or as a result of a new business renewal, there is a cost implication for the provider, the industry at large and, ultimately, consumers.
For brokers in particular, often operating on slim profit margins, cancellations are a major headache. By the time a customer decides to cancel their policy, the insurance broker has incurred marketing and administration costs, as well as aggregator fees in most cases. Also, in many cases, the customer may cancel the policy and the direct debit, making it difficult for the broker to claw back any instalments owed or cancelation fees that may apply.
Timings of cancellations are also a big indicator of potential fraud. However, data can help to reduce this issue, because it allows the broker to establish what factors increase the probability of cancellations.
This new knowledge around cancellations demonstrates how contributory data from across the sector, combined with data analytics skills, can create important new insights that allow brokers to make data-driven decisions and give their customers more accurate pricing.
* Source: analysis of LexisNexis® Motor Policy History database comprising data from 94% of the UK motor insurance market.
** Source: analysis of LexisNexis® Motor Policy History database comprising data from 94% of the UK motor insurance market.
*** LexisNexis Risk Solutions estimates a cancellation costs between £25 to £75 to an insurance provider: £25 x 1.3 million = £32.5 million.
**** For an insurance provider with 100,000 policies on their books, a cancellation rate of around the industry average of 5% per year, equates to a loss of anything from £125,000 to £375,000 each year. A significant sum for any business.
Follow the link to the LexisNexis Risk Solutions website for UK & I insurance to find out more about how we support insurers.