Many owners of classic motorcycles will be affected by CIE.

I am a very keen motorcyclist and like many others I am faced each year with the issue of whether or not to leave my motorcycle registered for the road over the winter months. A number of my friends also have classic motorcycles that are only rarely used in the summer months.

I was shocked when I heard recently about the upcoming changes to the law regarding insurance for off-road motorbikes and other vehicles: I heard it would soon be illegal to own a vehicle – even one you are not using – and not insuring it.

On investigation, I found the real situation was a little more complicated and although there was some hope, the new law will certainly have a major impact on all of us who want to adhere fully.

Update: It seems that an interesting solution has revealed itself on our own doorstep, so if you’ll excuse the shameless plug, it seems I’ve discovered a new type of insurance!

I thought I should share this topic with RiskHeads readers right away and get feedback on what people are thinking and doing about this. Read on for the full story and information on how to stay within the law…

What Does SORN mean ?

Since 31st January 1988, SORN has been an abbreviation for Statutory Off Road Notification.

If you are the registered keeper of a vehicle that’s not being road taxed and is kept off road you must make a Statutory Off Road Notification. This is done online or by phone as long as you are registered as the vehicle keeper. It’s all very straightforward and you receive an acknowledgement letter from the Driver and Vehicle Licensing Agency (DVLA) soon after they are notified.

The SORN ends when the registered keeper changes or road tax is purchased for the vehicle.

What is Continuous Insurance Enforcement (CIE) and what’s all the fuss about?

Put simply, from 1st April 2011 it became illegal to keep a vehicle and not insure or SORN it.

Previously it was only an offence to use a vehicle without insurance but the new law means that if your vehicle is kept in a garage and never used it will still need to be insured or otherwise declared SORN.

Everyone's favourite V890 SORN form.

From the end of June 2011 Insurance Advisory Letters (IAL) will be issued by the Motor Insurers Bureau to the registered keepers of uninsured vehicles. This will be following a check of the Motor Insurance Database (MID).

The IAL will advise the registered keeper that their vehicle appears to have no insurance and what actions to take to avoid receiving a fixed penalty from DVLA.

If the vehicle does not have insurance the registered keeper could:

• Receive a fixed penalty of £100
• Have their vehicle wheel-clamped, impounded or destroyed
• Face a court prosecution, with a possible maximum fine of £1,000

And moreover, payment of a penalty does not replace the need for insurance.

If I have a vehicle laid up what should I do ?

If you have no intention of using the vehicle on the road an extended period then it must be SORN’d right away!

If on the other hand the vehicle is only off the road for a short period then you could just retain your insurance during this period.

How can I insure a vehicle that is currently SORN ?

The normal approach is to ask your Insurers if they would restrict your normal cover to Fire and Theft only as you will not need the Third Party cover that is required under the Road Traffic Act.

Unfortunately I found that many insurers will not consider this reduced cover so you have to pay for full cover that you do not actually need.

Update: The shameless plug

Well, a funny thing happened after I wrote this article. You might not believe it, I probably wouldn’t – which is just A-OK with me – but I was contacted by a client of our sister company, who are offering a new product designed for, yes you’ve guessed it, off-road motorcycle insurance.

It seems therefore that there is a solution to this dilemma – for motorcycles at least – in the form of a new website, www.sorninsurance.co.uk So I did a little review.

It seems the website offers motorcycle owners genuine ‘laid up’ cover for all bikes, not just classics. I’m told it’s a new scheme aimed at bikers to reduce the cost of their premiums by providing cover for the bike whilst its kept off the road.

So clearly it covers your bike whilst stored in your garage or shed – something the average household insurance policy does not cover – providing fire and theft insurance whilst your bike is off the public highway.

The policy looks good for bikers who don’t ride some of their bikes or for people who just want some cover during the winter months, or those who have a collection of machines or their bike is too ‘modern’ for a classic laid up policy.

I got in touch with SORN Insurance ‘s Head of Products Paul Wheeler who was happy to give me a quote for RiskHeads (no surprises there!)…

“We know motorbike owners suffer sleepless nights knowing their pride and joy may be at risk as they can’t get a Fire and Theft only policy. The ones who get some have a standard Third Party Fire & Theft policy which means they end up paying through the nose for cover they don’t really want or need. Our ‘laid-up’ policy is available on all motorcycles with no age restrictions. To get an instant quote and buy online visit www.sorninsurance.co.uk or call and speak to an advisor on 0844 3188 398.”

Well there you have it! This may not be right for everyone, but it’s the best solution I’ve seen.

Did you find this article useful?

Yes | No

Simples

I am sure that our UK readers are all familiar with the TV campaigns run by motor insurance comparison websites. From CompareTheMarket & MoneySupermarket to Confused.com we’re all bombarded.

Just the mention of a Meerkat or an Opera Singer will get most people reeling off slogans for these brands, so we might naturally assume the ads have been a colossal success – but have they?

At RiskHeads we like to dig a little deeper. Research we uncovered from one of the major players in this area found that 19% of policyholders automatically renew their motor insurance with their existing insurers rather than shopping around for a better deal.

11% of these motor insurance customers don’t even think they can find a better deal and 8% (which is a staggering 2.7 million motorists) will accordingly automatically renew because “they can’t be bothered” to see if they can save money.

All this means that on average policyholders stay loyal to their insurers for 2.6 years with the older motorists (over 55) staying for around 3.3 years.

And yet the saving these sites can offer can be huge: even on average it’s in the region of £270.

So why don’t policyholders look around for a better deal?

The Go Compare Opera Singer

The consensus answer to this would seem to be Apathy. Most people lead increasingly busy lives and the thought of entering yet more personal details into a website with no certain return on their time investment is distinctly unappealing.

The insurance relies very heavily on this: even though there are savings to be made many people will just not take the time to shop around. If this were not the case, premiums would have to rise all round in order to make insurance profitable again.

Motor insurance premiums are likely to rise by something in the region of 30-40% this year following very bad losses due to two consecutive bad winters. It will be interesting to see whether this encourages more shoppers to reach for the mouse.

But today, despite the blanket advertising it would seem that for the most part the message is still not getting out there.

For our consumer readers it only takes a few minutes to make sure you really have the best value policy to suit your needs, so our advice would be to get searching!

Let us know what you think! Are you an aggregator or a confused policyholder? Should insurance brokers be jumping on the comparison website bandwagon somehow?

Did you find this article useful?

Yes | No

Notice the position of the apostrophe there.

I am sure you have all seen the outcome of the European Court of Justice case 1st March to establish whether insurers are allowed to take into account sex as one of the many risk factors they use in calculating premiums.

From 2013 it will be an illegal act if insurers use sex as a risk factor.

This is not great news for specialist insurers like Sheilas’ Wheels who have taken the initative in offering preferential rates to women drivers.

Whilst this may be another good step on the way to creating true equality it does raise some interesting issues for the whole concept of insurance rating, an art grounded squarely in the statistics of risk-avoidance.

Traditionally insurance premiums are calculated to reflect the risk that is being taken by the insurer. To calculate this risk many factors will be taken into account such as claims costs and expenses already paid out, trends in certain areas and age groups, type of vehicle, security fitted and of course a profit margin for the insurer.

In assessing the level of risk insurers will look at the breakdown of claims paid into different groups – and of course sex has always been one of these.

There is no denying what the statistics show: male drivers, especially the younger ones do have more accidents per capita in comparison to their female risk equivalents; i.e same car, same area, length of driving experience.

• Men are 3 times more likely to be involved in a fatal car accident than women;
• Men account for 80% of speeding fines in the UK;
• 44% of men have used a mobile phone whilst driving compared to 30% of women;
• 20% of men have fallen asleep at the wheel compared to just 6% of women;
• In 2003 93% of convicted drink drivers were men.

These statistics would seem to suggest that the sex of a driver is a reasonable way for an insurer to assess the risk they are accepting and should not be looked at any differently to any other underwriting consideration.

What on earth next?

This is not NG1.

Am I missing something?  Is it the maths here that’s being sexist or the mathematician?  Perhaps we could help the statistics to be less narrow minded by dropping in a few extra numbers?

The EU ruling rather makes one think this madness might spread to other classes of insurance as well.

Is it fair for example to charge a 50 year old man more for life insurance than a 45 year old?  Whichever way you look at it this is age based discrimination, for good or for bad.  What about charging higher premium’s against theft in Nottingham’s infamous NG1 postcode area?  Is this discrimination against the people of Nottingham?  Yes.

But whilst it’s discrimination it’s restricted to a very narrow band.  If NG1 residents go looking for non-theft insurance for instance they won’t be subject to the same maths.

And maths is exactly what it is.  As far as I’m aware the actuaries who come up with these algorithms don’t actually have anything against men, old people or the unwashed students delightful people living in NG1.

Insurance Theory and Discrimination are the same thing.

In researching this article, I amused myself (somewhat) by checking the Wikipedia definitions for both “discrimination” and “actuarial science”.  It seems that:

“Discrimination” is the cognitive and sensory capacity or ability to see fine distinctions and perceive differences between objects, subjects, concepts and patterns.

“Actuarial science” is the discipline that applies mathematical and statistical methods to assess risk in the insurance and finance industries.

There’s certainly some common ground there.  Can either exist without the other?  You might forgive me for thinking “No” and asking “Where will this end?” !

The nasty conclusion

Having been given a situation where they cannot charge a woman less – which ought to mean they should charge a man less as the risk is the same – insurers will predictably increase women’s premiums rather than reduce the men’s.

There is no logic to this approach outside of plain old fashioned (albeit mercenary and unfair) commercial practice;   if insurers were happy to accept a premium for a woman driver and now have the same details for a man, beyond any doubt the man’s insurance should reduce.

There has been no increase in risk for the woman driver so what is the justification for increasing their premium?  Unfortunately the reason for the increase is that the premium for men cannot be decreased in line, because they are the ones making all the claims

Perhaps it’s been a bit of a sour victory for equality if men are still being proven to be more dangerous drivers and women are paying the price.

And once again insurers have done nothing to improve their image.  It was a great marketing opportunity missed but perhaps one that not even they could afford given the risk involved and the overwhelming maths.

I leave you with a quote from Lord Davies of Stamford speaking in the House of Commons 1st March:

“it is a pretty remarkable day when an insurance market is instructed to operate contrary to actuarial principles”.

Perhaps we will be seeing more remarkable days in the years to come.

—

As always, I’d love to know whether you agree.  Has the ruling affected your business or your premiums?  Let me know!

Following on from our glossary series of insurance terms and methods in which we outlined Claims Loss Ratio and Combined Ratio, I would like to take a look at the concept of Earned Premium and give you a few examples as to the usage, importance and pitfalls when working with it.

In this article I investigate Earned Premium in the following ways:

1. What is Earned Premium?
2. Why is Earned Premium important? Why bother?
3. Calculating Earned Premium
4. More advanced calculations.
5. Common mistakes and how to avoid them

What is Earned Premium?

Most insurance policyholders would probably assume that when they pay a premium their Insurers can immediately class this as premium income and incorporate this into their company accounts.

In reality Insurers to do not do this as they only class a premium as being Earned when it is based on the amount of time which has actually elapsed under a contract for an insurance policy.

Why is Earned Premium important? Why bother?

Whilst policyholders pay premiums for their insurance up front, the Insurer must earn the premium by exposing itself to the risk on behalf of the Insured.

Within the accounting systems used by insurers the Earned premium can be counted as part of the profit for a given accounting period while the unearned premium cannot.

For this reason, it is very important for insurance companies and their agents to put software in place to easily calculate Earned Premium.

Earned premium is also often used to calculate Insurers’ loss ratio where total losses for a period are divided by the Earned premium for the corresponding period.

Without determining Earned Premium, the true profitability of any insurance operation cannot be determined, which is why the savvy insurer doesn’t leave home without his Earned Premium report.

Calculating Earned Premium

To determine Earned premium, we need to look at the length of the policy, and determine how much time has already elapsed.

Earned Premium = Total Premium / 365 * Number of Days Elapsed

For example if a 365 day policy with a full premium payment at the commencement of the insurance has been in effect for 180 days, 180/365 of the premium can be considered as being Earned. This will also mean that 185/365 of the premium would have to be considered unearned.

The same rules apply for policies with a term of more than one year, if someone paid a premium for two years of home insurance and 18 months has elapsed the Insurance company has Earned three quarters the premium.

Note that in leap years you will need to use 366 and not 365 in the formula above.

Alternative method:

Instead of using days elapsed it’s also possible to use whole months to calculate Earned Premium.  So for instance, if 3 whole months of a two year (24 month) policy have elapsed, the calculation would be as follows.  Thanks for George for pointing this out in the comments!

Earned Premium = Total Premium / Full Policy Term in Months * Number of Months Elapsed

i.e. Earned Premium = Total Premium / 24 * 3

More advanced calculations

There are two different methods for calculating earned premiums, an accounting method and an exposure method.

The accounting method is highlighted above and is the more commonly used and is frequently used by Insurers in their corporate income statements.

Under the exposure method, Earned premiums are calculated based on the percentage of total premium that was exposed to loss during the period being calculated and does not take when the premium was actually collected into account.

Common mistakes and how to avoid them

It’s easy to calculate Earned Premium providing you have the right tools. Often we’ve seen mistakes made during manual calculation of Earned Premium or through oversights in Excel spreadsheets. We would always recommend using software to avoid mistakes and make Earned Premium a cornerstone of automatic reporting across your entire operation, but maybe we’re biased!

Feedback

As ever we absolutely thrive on your questions and feedback. Leave us a comment below!

Introduction

In today’s fiercely competitive digital marketplace, insurance products are diverse, tailored and changing.  Customers need trusted advice more than ever — and will happily pay for it.

Providers who fail to establish themselves as trusted authorities will at worst be ignored completely and at best miss out on the more profitable accounts.

Your customers are accustomed to ‘Googling’ the cheapest physical products and getting overnight delivery.  It comes as no surprise therefore that they expect at least the same level of service when buying financial products. But they also know that insurance is of no use unless it covers their risk, making products far more attractive when combined with good advice and practice, delivered by a brand they trust.

So what are you waiting for?  Follow the six steps below and reap the rewards.

Step 1: Become an authority so customers can trust you

The more trust you can earn from customers old and new, the more easily you will profit from your product range and knowledge.

If you can establish yourself online as the provider of choice, or better still, the Industry Authority, the rewards will be substantial.

Picture the scene:

The website of Company X convinces you they are the authority in a specific insurance class.  The material they provide online is not only comprehensive but also clear, positive and relevant.

Reading through the material which is so comprehensive you can’t help but find their pages throughout Google, you feel convinced they are a leader in their field (though you don’t really check, how could you?).

Their website guides you to an insurance product you would not have known about otherwise and although it’s slightly different to what you were looking for (and more expensive) you feel it is the best thing for you and given the level of trust that you are already beginning to give them, you don’t check the price elsewhere.  You figure it might not be the very lowest price on aggregator/price comparison websites but it seems reasonable enough and naturally you don’t want to risk using someone less trusted.

You are beginning to feel a sense of commitment towards Company X.  They have educated you, given you information on everything you could ever ask for and advised you.  You feel like buying your insurance with them will be a pleasurable experience and feel reassured that afterward you will have a pleasant experience too.

And so you happily click the Buy button, enter your payment details and then immediately start telling colleagues, friend and family that Company X are the best thing since sliced bread.

Receiving your policy documentation along with a helpful welcome e-mail with even more tips and help about insurance, you ask yourself why you would ever use anyone else?

And in future years, you might just let your insurance policy auto-renew rather than shopping around;  you might not even care or notice if the price goes up slightly!  The service is still good and Company X are still the company you trust.

The currency of high profit insurance trade is trust: harness the Internet as the most effective means of building a database of loyal and committed customers that you can sell to again and again and again.

Step 2: Accept that “Interruption Advertising” hardly works

The days are gone when customers would idly sit by and let their activities be interrupted by commercials.(1) Today, customers have far more choice about how they respond to it.

Such choice has eroded advertising margins on TV, Radio and print, because the Internet has changed the way customers expect to find solutions and shop.  They choose when and what for.  They search without assistance for a service that is right for them and they do this in their personal lives and in the corporate workplace.

Advertisers who have attempted to turn the Internet into TV have failed again and again.

Advertisers who have embraced the new media in the spirit in which it was born have become the heavyweights of our new digital world.

Step 3: Start getting permission & involving your customers.

It’s a statistic often quoted that we are each bombarded with more than 3000 marketing messages each and every day(2). We are all absolutely saturated with ‘interruption advertising’, which tries at every opportunity to steal moments of our ever more precious time. Most of us do everything we can to ignore it and such lengths have made this type of advertising ever more expensive and less effective.

At home or at work, given the freedom to find the content we want via Internet-based services, we are all successfully dodging or ignoring adverts all the time and as a result, we are beginning to expect that when advertising material does arrive, we were asked our permission to be shown it in advance.
When advertisers don’t ask our permission before they market to us, many of us go elsewhere. On the other hand, in return for a little gift or a titbit of useful information, the most successful online companies are allowed more than ever by their loyal customers to sell them more, or to gather more information about them.

This method has become far more effective than traditional Interruption Marketing en-masse. But most companies, not understanding the rules of the new marketplace, never get this far. In fact, Interruption Marketing applied on the Internet – a grave mistake – is even less effective than it has become via traditional media, since Internet users are well versed in avoiding advertising and do not expect to be interrupted when surfing; TV users for example don’t have the same opportunity to avoid advertisements.

Today more than ever, it is of paramount importance that marketing is performed in the right way, in the right place.

Step 4: Build, refine & milk a high quality customer database.

A database of customers we hope to sell to is only as useful as the quality of the data contained.

For instance, a database of customers who are known smokers of child-bearing age who live in cities where smoking has recently been banned are much more likely to snap up an offer for a new Wonder-Drug Quit Smoking Now campaign, than infants or persons who do not smoke.

New technology enables us to cheaply and almost automatically market the right products to the right customers. It also allows us to identify those customers and continually refine our databases.

Sifting through paper records in the past made selling to a sub-section of customers often too expensive to contemplate. Now it not only makes economic sense but it is crucial, since bulk advertising has lost it’s effectiveness almost entirely and many competitors are already beginning to feel their way towards the rules of the new marketplace.

Not using the Internet and emerging technologies to compete in an arena where Permission Marketing, High-Grade Customer Databases and Trust are the cornerstones, means marketing will be inordinately less effective.

The Internet did not invent direct marketing but it may fulfil its dream of accountability and Return on Investment.

Step 5: Make your website stand out, emphasise what makes you different.

In addition to becoming an authority, it’s also important to differentiate oneself in other ways.  Differences cause debate, people take sides and if things go well you might be at the centre of the discussion going on all over the web.  If your product is more comprehensive and you think that’s best, say so, publicly!  If it’s less comprehensive and you think that makes it more cost effective or simpler, say so, publicly!

You should of course try to bolster and reinforce your name via consolidated marketing campaigns but most importantly, clarify to all what differentiates you from the competition and why you should become every customer’s rock in a sea of alternative providers.

You should make it your ongoing task to identify these differences and drum them so firmly into the mind of each and every new and existing customer that they no longer care whether there are any other providers. By showing your value to them as often as possible, they cannot forget it and they are far more likely to cancel (churn).

Step 6: Reporting & analytics are crucial, use them well.

Without effective reporting all our efforts will be blind and ineffectual.

A fantastic database of loyal customers is hard to build if you don’t know where great customers come from, or which subsets of customers like your products best.  A great website with thousands of pages of content is no good if your reporting isn’t telling you which pages are most popular, or highest converting, or not telling you that none of those pages have links to your New Quote process, so everyone that visits them never becomes a paying customer.

Fortunately, modern analytics and reporting tools give us the opportunity to monitor every aspect of your presence online, the users who visit, the customers you have, their habits and behaviour. Make relevant metrics show you what areas of your business are performing and which are not.  Don’t obsess over things like number of visitors unless you know which visitors can be turned into customers.

Make sure you use and understand analytics and target the right performance indicators or you will be running blind and your business will perish.

Conclusion

I’ve enjoyed writing this article and hope it will be of some use to you.  Please leave a comment in the box below and let me know what you thought.

Did you find this article useful?  Did it transform your business overnight, or tear it to shreds? Let me know!

Do you have any ideas for improvements or any tips of your own?

References

1. In the article ”Practical Advice from the Union of Concerned Scientists” by Michael Brower, PhD and Warren Leon, PhD: “The average American is exposed to about 3000 advertising messages a day and globally corporations spend over $620 billion each year to make their products seem desirable and to get us to buy them.” Union of Concerned Scientists Website http://www.ucsusa.org/publications/guide.ch1.html
2. “Traditional advertising simply cannot be carried over to the internet, replacing full-page ads on the back of The New York Times or 30-second spots on the Super Bowl broadcast with pop-ups, banners, click-throughs on side bars. This might be a subject where considerable disagreement is possible, if indeed, pushed ads were still working in traditional media. Mostly they have failed. One newspaper after another is going out of business across the United States and the ad revenues of traditional print media, even of highly respected magazines, is declining. The ultimate failure of broadcast media advertising is likewise becoming clear.” http://www.techcrunch.com/2009/03/22/why-advertising-is-failing-on-the-internet/

Pressure is mounting today on Alistair Darling as voices from within the industry call for his resignation over after it is alleged he compared the insurance industry to a “Ponzi scheme of Madoff proportions”.

Darling’s press office immediately responded to the allegations by releasing a statement, claiming “Even if Alistair did make these comments (and we’re not in a position to confirm or deny this), what people must try to remember is this Government is here to serve the people and that the Chancellor is no more expected to understand economic theory than the Prime Minister is expected to demonstrate competent leadership or understand foreign policy.”

Mr Darling was unavailable for comment, however sources close to him say he is “nonplussed” by the whole affair and is rumoured to have spent the day in an undisclosed location playing table tennis with Ed Balls.

Gordon Brown, during his weekly spot on Piers Morgan’s evening talk show (“Things can only get better”), broke his silence on the issue stating that “I never liked him anyway”, when, in a controversial and unprecedented move, Piers invited him to talk “about the issues and not focus on the vastly insignificant personal angles”. The Prime Minister responded, stating that “[we] have consulted several expert lobbyists for the insurance industry and they assure me everything is just fine. What more can we do?”. The FSA was not mentioned, presumably because they’re now well known to be about as useful as a one legged man in an arse kicking contest.

As more and more tabloid pressure mounts on Darling, it would appear his support from the political giant that is Gordon “We saved the world” Brown is beginning to wane. Insider sources within government say “This is a tipping point for Darling, and the moment we locate the Cabinet, action will be taken…”

Consumers generally think they benefit when they buy insurance direct but is it true?

To find out, we’ve asked people what matters to them when buying insurance, and in turn our panel used those criteria to evaluate the differences between buying insurance via a broker and buying direct online.

Why do consumers hate the middle man?

Primarily, customers perceive any middle man as an unnecessary third party, and conventional wisdom dictates that this means additional cost and possibly mistakes. Advertising by insurers, for example Norwich Union Direct (now Aviva), to ‘go direct’ has compounded this feeling.

What is important to consumers?

In order of importance, these are the things people said matter to them:

1. Cost.
2. Ease.
3. Speed.
4. Peace of mind that everything is covered.
5. Security of personal data.

So let’s now analyze these items and let our panel judge how each performs when insurance is bought directly or when via a broker.

1. Cost

Contrary to popular consumer belief we found that broker pricing was actually better than direct insurance pricing.

The reason for this seems to be principally due to insurers providing different rates to brokers, in order that premiums are lower. Why would insurers provide special broker pricing? Simple: because the risk is lower for the insurer. Brokers are professionally trained to choose the right policy for their customers, and not to under insure, therefore avoiding unnecessary claims while maintaining the correct premium income.

‘Cutting out the middle man’ it seems, does not save money this time. On the contrary!

2. Ease

Many of the consumers in our test case were surprised here. At least half began our test with the impression that buying policies directly would be the easiest option for them. After trying both, almost all had changed their mind.

Whilst the online experience usually proved more pleasant than the phone, most brokers offered an online service, and were far, far more pro-active after they received the initial quote request from the consumer, often answering queries by personal email or call and helping to reassure customers with a human service. Furthermore, most direct services completely fell down when queries or changes were required that were less common, particularly later in the policy life cycle. Brokers really shone through here.

3. Speed

The results here were quite evenly balanced. In the case of the time taken to generate initial quotation figures, direct services (online) were consistently very quick, while some brokers answered quote requests by personal follow up.

The difference however was somewhat reversed when it came to mid term changes, documentation requests and one off queries. The direct services often fell back to large call centres whose staff had little or no real insurance knowledge. In this areas brokers were more efficient, making suggestions our consumers found highly useful, saving them lots of time.

On balance, the speed at which quotes were produced by the direct services was not significant to our consumers when compared to the speed and efficiency with which brokers generally managed their policies throughout the policy life cycle.

“As long as my broker doesn’t take too long to come back to me, I don’t care.   It’s his problem while the clock is ticking, not mine.”

4. Peace of mind that everything is covered

We saw few surprises here. Brokers were largely far more efficient at cross checking policies than consumers, and also very good at educating their customers, explaining what types of cover were available and answering queries.

Direct processes were better than in the past but put too much focus on the consumer to do this work himself/herself to be able to compete with the level of service provided by brokers.

The really good Direct services centred around only covering the low risk policies, and leaving any consumer with non-standard requirements high and dry.

5. Security of personal data

This was a difficult one to test, and fell largely to our technical team. We did however take into account how consumers felt about their data security after using the various services.

In the case of Internet based services, the direct services tended to follow security guidelines marginally better than broker services, mainly due to the size of the organisations involved and lack of good software on the part of some brokers.

On the phone however, we saw a different story. Brokers, being far better equipped to deal with specific insurance questions and used to a human discussion, gave people a stronger feeling that they were in safe hands. The process of securing personal data was much the same as with direct, but the trust conveyed by brokers was better.

Summary of Results

So who won?  Broker or Direct?

1. Cost. [Broker]
2. Ease. [Broker!]
3. Speed. [Broker, though people admitted they were heavily biased due to point 2.]
4. Peace of mind that everything is covered. [Broker]
5. Security of personal data. [Broker]

Conclusion

We set out in this article to test the general perception by consumers that ‘going direct is better’, for the benefit of consumers and brokers on the whole.

Whilst we didn’t test every website and every class of insurance, the results with our test users were conclusive.

Whilst conventional wisdom dictates that the middle man offers little to the discussion and always has his price, in the complex world of insurance, perhaps things are not so simple, and after doing some research at RiskHeads we are now more certain than ever that the Insurance Broker’s day is far from over.

Our recommendation to all would be to trust your broker, let him shop for you, and you will likely reap dividend, whilst living an easy life!

1. What is Combined Ratio?
2. What is Combined Ratio used for?
3. Example of how to calculate Combined Ratio…
4. How the experts make Combined Ratio work tor them
5. Common mistakes and how to avoid them

What is Combined Ratio?

Combined Ratio is a measure of performance used by underwriters/insurance companies.

What is Combined Ratio used for?

Combined Ratio is perhaps the most useful way to determine the profitability of an underwriting operation.

Example of how to calculate Combined Ratio…

To calculate Combined Ratio simply add the Loss Ratio to the Expense Ratio.

Combined Ratio = Loss Ratio + Expense Ratio

How the experts make Combined Ratio work for them

A combined ratio of less than 100 percent indicates underwriting profitability, while anything over 100 indicates an underwriting loss. Ensuring easy access to accurate Combined Ratio figures is critical for underwriters; without it or some meaningful equivalent we cannot ever be certain of company position, and therefore cannot expand or make float investments.

Common mistakes and how to avoid them

Combined Ratio is dead simple to calculate providing you have access to accurate Loss Ratio and Expense Ratio figures. To ensure you get this right, first read our respective articles on Loss Ratios and Expense Ratios.

Feedback

As ever. we absolutely thrive on your questions and feedback. Leave us a comment below!

Never add resource to a late software project…

Many of those new to insurance software development assume that adding programmers to a late project is the right thing to do in order to finish as quickly as possible.

WRONG! This is almost always the absolute worst thing you can do. It will not only not help but will actually make things worse, often much worse. You’ll probably never work in software again.

Why?

The reason for this is simple: communicating software ideas on even the simplest project is frightfully expensive and rises exponentially with the number of team members.

In our industry, even the most elegant insurance software is complex at its heart.  We deal in increasingly complex mathematical and emergent algorithms; we can’t get everything across in a single utterance, this is actuarial science.

With each developer you assign to a project (at any time in its lifecycle) you increase the vectors of communication, often considerably, and the average communication burden for each team member goes up.

To explain more clearly…

A 1 man team communicates within her head, so no problem there.

In a 2 man team, there are two vectors for communication. When Hildergard (eh?) writes code that Bartholemew (who?) doesn’t understand, he interrupts her flow to ask about it, and visa-versa.

In a 3 man-team, there are 6 vectors for communication, whilst in a 5 man team, there are 20 vectors for communication. When Jonah writes a new routine that he wants people to use he tells the team leader Archibald. Archy tells everyone to refactor their code to use the new routine but they’re all very busy, and it’s not the first time someone has told them how to make their lives harder. Consequently, many of them forget, realise too late, can’t even remember where to find the routine or how to use it, or never took their headphones off in the first place. Consequently, sporadic conversations break out between all team members: Jake and Ben talk about optimisation, Phil and Lindsey argue about nomenclature, Ben and Lindsey agree that Roger, Jake and Derek have usage all wrong. In the end everyone speaks to everyone about it, and after all the chinese whispers subside, Jonah wishes he was in a 1-man team like the good-old days: no one has used his panacea routine properly and some not at all. Now he has to rewrite everything, and hold a mini conference to sort things out. Again. Just like yesterday, which was his birthday and nobody remembered. Jonah decides to cut his losses and quits.

The Theory

Fred Brookes (the immortal God of software development theory), defines the number of vectors thus, where n is the number if developers on a project, and v the result:

v = n(n – 1)

So, with a 6 man team there are 30 vectors for communication, and with a 10 man team *gulp* there are 90.

So what?

When you add techies to a late project, you screw everything up. Software development isn’t like building a house, it’s much more like designing it, only harder. Let’s say you add 2 people to a 3 man team, right at the end of the project. At this point your programmers are working day and night, sleeping under their desks and eating with one hand. The team leader is living and breathing code, has a caffeine drip and never stops muttering to himself in binary. He’s getting email questions every second. That’s when you choose to increase the chat traffic vectors from 6 to 20 and bring in a couple of clowns who keep asking stupid questions. And when they finally do some real work, they bring the whole precious house of cards fluttering to the ground. What you’ve done here is invite a couple of wet monkeys in to dance on the architect’s blueprints.

You pay peanuts…

The thing is, even programmers sent by God Himself^[i] need things explaining if they’re new to the project, and even then they still screw things up for a while (a year usually). That’s even if you have great documentation (and you all obviously have that… right?).

You can actually make the project go backwards.

What?! Yes, if you get a situation where the team doesn’t have time to explain everything to the newbie, he starts guessing, and changing code he doesn’t understand.

If your poor junior is left to work on rating matrices or something that affects billing or reports, you can kiss your insurance operation goodbye. By the time you find the bugs, it might be too late.

Holy cow. Whatever will I do?

1. Don’t add programmers to a late project (well yeah).
2. No really, don’t ever do it.
3. Study software development theory: start by reading this and this and this.
4. Set realistic deadlines (easier said than done – more on this in a future post).
5. Encourage group communication; ever heard of scrum? It’s important to have well organised, poignant, productive group discussions.
6. Expand your software ambitions horizontally. This means putting new programmers on new projects, creating complimentary projects that all work perfectly and get finished on time. Wise men know nothing can be done fast. It becomes another thing entirely when done differently, faster. Piling resource onto something you want done faster than it can be done is silly vertical horseplay, it will end in a heap of burn outs and angry developers who no longer trust you.

Show me the money. What’s the quick way?

Hmm, there’s no pleasing some people. Well you could always take a leaf out of Google’s book: buy your programmers pizza, make the vending machines free, and give everyone a share in the profits. Make the office so friggin’ cool they forget where they live. Take all the door knobs off and put in a disco ball. Never run out of coffee.

Did you like this post?  Leave a comment below…

* Like Einstein said, _He_ doesn’t play dice. God built the world in 7 days with C++. Being perfect, he has no need for managed code.

The Insurance Institute for Highway Safety crashed a 1959 Chevrolet Bel Air into a 2009 Chevrolet Malibu to ‘celebrate’ their 50th Anniversary.

Malibu and Bel Air Crash - both deserve their fate...

Must have been some party. I wonder whether they planned it or someone had too much fizzy pop.

The original video posted to YouTube was here but seems to have been taken down for some reason, but there’s a fresher copy here.

Feel free to add more links to the video or similar videos in the comments.

What do you think, was this a bit of a sick way to celebrate for a safety agency, or was it a scientific tribute to man’s great progress?