SBD released a three part research series on “Understanding the UK Car Insurance System” as part of its extensive support services in vehicle security and low speed crash. Chris Vargyas, one of SBD’s senior security specialists, briefly discusses the importance of the UK insurance system, its processes and how its influence is expanding outside of the UK market.

Q. Why is cost of insurance such a hot topic in the UK automotive industry?

Chris Vargyas: In 2009, SBD conducted a survey of 300 UK drivers and 68% of them consider running costs as one of the three most important factors when looking for a new car. Insurance cost being the most significant factor considered as part of the total cost of ownership of a vehicle. Although they may take a finance deal to pay for the initial car purchase, they must consider their budget for running costs carefully. A lower cost of insurance can therefore be a make or break purchase decision, especially in today’s cost sensitive market.

Q. Why does insurance cost vary by vehicle?

CV: To simplify how the insurance industry identify the risk associated with a particular car, they have devised a risk classification they called the Group Rating Process. This assesses the Damage and Repairability (D&R) in low speed crash tests and takes into account the vehicle performance characteristics and the level of security fitted. These are combined into an overall risk classification known as the Group Rating.

Every new car is assessed against the same set of factors and at the end of the process each model is allocated a group rating number between 1 and 50. The higher the group rating the more expensive a car is to insure. For example, a Volkswagen Fox is a Group 1, which is low risk, whilst an Audi R8 Cabriolet is a Group 50 indicating a high risk. The group remains fixed for that particular model during its lifetime, so it’s important to get it right first time. As well as being issued to all insurers, the group ratings are published on websites, in car magazines and often vehicle sales brochures as a way of helping drivers estimate relative insurance cost.

Q. How is the group rating calculated?

CV: There are a number of individual factors that are considered, such as engine power and kerb weight, the repair cost and repair time following a low speed crash and how secure the vehicle is from being stolen or of items being stolen from it.

There are two stages to calculating a group rating for a new car. During the first stage, the insurance industry use a standard formula to calculate the combined risk of the performance capabilities and the D&R; the formula applies weightings to the different factors and produces an initial rating between 1 and 50. Once the initial rating has been calculated, it is then adjusted according to the performance of the security systems fitted. The higher the initial rating, the higher the security performance is required to be. A good security result then lowers the risk and is rewarded with a reduction in the initial insurance group. If security is particularly poor, then the vehicle is penalised with an even higher group and insurers may insist that customers fit additional security devices.

Q. How can vehicle manufacturers get the best out of the process?

CV: From our work with various vehicle manufacturers, we know how complex the UK insurance system can be. Even though the formula is now available to vehicle manufacturers from the insurance industry, to get the best out of it, we recommend a series of controlled stages.

Firstly, set clear targets at the design concept stage to ensure that the specifications are aimed towards minimising insurance risk and gaining a competitive insurance group rating for the vehicle.

Secondly, conduct design reviews and performance tests to ensure that development constraints that may affect the initial targets are known in advance and can be managed accordingly.

Thirdly, SBD recommend that manufacturers pro-actively manage the insurers’ assessments to fit within the development cycle.

This is then overlaid by a parts pricing strategy and careful choice of which security features are fitted to which grade of each model to minimise costs and maximise the insurance benefits.

In the second report of the UK insurance series, “How to Gain Competitive UK Insurance Ratings”, we’ve detailed the best practices for each stage of the insurance process. We advise how manufacturers can maximise the likelihood of achieving a competitive result by carefully managing their D&R and security strategies during the new model development process. We also offer strategic advice, target setting and expert help for low speed crash and security system design as separate services.

CV: The low speed crash test carried is carried out in accordance with the Research Council for Automotive Repair (RCAR), which is an internationally recognised set of tests to assess the performance of vehicles in low speed crash. Good performance in the these tests is of wider benefits in a number of other countries.

In addition, in the UK there are detailed security assessments which exist, and these are administered by Thatcham on behalf of the UK insurance association.

Thatcham are recognised as one of the world’s leading authorities for repair methods and security assessment. Swedish insurers have an agreement with Thatcham to use their security assessment criteria and their 5-star rating system for the general public to compare vehicles. The Russian anti-theft association, PAIRP, have been working with Thatcham to highlight the gap between models on sale in the Russian market and their equivalents in the UK. Thatcham have also been providing training to the insurance industry in Turkey, Malta and Malaysia as well as parts pricing information to the USA.

It is far easier for countries to adopt an existing system than it is to develop their own, and Thatcham are known to be in discussion with a number of other countries about adopting their assessment and classification systems with the aim of achieving a standard set of tests recognised globally.

SBD’s “Understanding the UK Car Insurance System” contains the following three reports:

• Part 1: The Process - an introduction to the UK insurance system with an explanation of how it works, the effect of recent changes to the system and the main factors that influence a car’s insurance rating.
• Part 2: How to Gain Competitive UK Insurance Ratings - an insight into how to develop an efficient strategy to reduce insurance costs with minimal increase in the vehicle cost.
• Part 3: Thatcham and their Expanding Global Influence - an explanation of the range of activities that Thatcham conduct for insurers and how their influence and methods are attracting interest outside of the UK.

For more information on how to obtain this research or if you need more strategic support or advice, then please contact Juanita on jappleby@sbd.co.uk