Anti-collision tech driving up the cost of car insurance
Some new safety technology on vehicles to prevent accidents in the first place is expensive to fix and leading to higher premiums, says IAG New Zealand chief executive Amanda Whiting.
Despite those safety features, the number of crashes was not coming down, which Whiting said was consistent with a global trend.
Higher repair costs and no fewer accidents were putting pressure on car insurance premiums to rise, according to Whiting.
Last year, most car insurance policyholders with IAG brands, including State, NZI and AMI, got mid-teen percentage rises in their premiums, Whiting said, and other insurers hiked their premiums to similar levels.
Both IAG and Tower saw a rise in people switching to rival insurers for lower premiums, and some also dropped portions of their cover, including some households which lost cars in the 2023 Auckland Anniversary weekend floods.
On paper, anti-collision technology in cars promises safer motoring, but ironically, it appears to be driving up the number of claims being made for collision damage to insurers.
When the United States Department of Transport’s Partnership for Analytics Research in Traffic Safety (PARTS) studied the safety gains for forward collision warning and automatic emergency braking, it found that they reduced front-to-rear crashes by half.
The study from 2022 also reported that vehicles equipped with active intervention technologies that helped drivers stay in their lane, such as lane keeping assistance and lane centering assistance, reduced single-vehicle crashes that led to serious injury.
But Steven Wilson, chief claims officer at Tower, said the technology was designed to keep people safe, not to bring down motoring costs and insurance claims.
Wilson said anti-collision and driver-assist technologies appeared to be leading to people driving less attentively.
“What we’ve seen through telematics statistics, and also through our own claims is people seem to be taking a lot more risk while they are driving vehicles with more technology. They are feeling a lot more comfortable that they are assisted and will get warnings,” Wilson said.
Telematics is a phrase used by insurers to describe driver monitoring through mobile phone apps.
“Telematics statistics tell us that 34% of customers who had a claim have been distracted by their device within a minute of the impact. That validates people trusting their vehicle that bit too much,” Wilson said.
Another factor in the rise in collision claims may be people driving older cars with no anti-collision technology crashing into newer vehicles. The average age of New Zealand’s vehicle fleet hit 14.8 years in 2021.
And yet another factor is that even small bumps and dings for cars that are jam-packed with sensors for driver-assist technology, and made from composite materials designed to make cars safer, are expensive to repair.
Once, those small dings and bumps would cost less to fix than people’s excesses, which were often set around $500, and so they would not bother their insurers, keeping a cap on insurers’ claims costs.
Now, Wilson said, “we are seeing a really high volume of claims under $1500”.
“The majority are related to small damage when parked claims.”
Excesses had remained roughly static for about 30 years, he said.
For those who can self-insure for a higher excess, that can help to bring their annual premiums down.
Whiting said there were several other factors that had driven up the cost of repairing, and hence insuring cars, including wage inflation and global disruption to supply chains.
“We had some challenges around getting parts, and of course, that supply and demand drove the cost up as well,” she said.
The insurer had been expanding its repair hubs, which are workshops for non-structural repairs, which was helping it get a better handle on price increases, she said, meaning premium rises would be lower this year compared to last.
The impact on households is clear from IAG and Tower’s recently reported financials on the ASX and NZX sharemarkets.
At Tower’s annual shareholder meeting on Wednesday, chief executive Blair Turnbull said Tower earned $210 million in motor insurance premiums in its latest financial year, up from $174m the previous year.
“The higher frequency of motor claims which challenged insurers in the past year has settled, with the motor loss ratio now trending downwards.”
Tower has led rival insurers on riskbased pricing on homes, charging people who own homes in areas more prone to things like flood and earthquake more for their cover.
Turnbull indicated that it was doing the same with car insurance.
“In the past year, we enhanced our motor pricing algorithm with additional rating variables to ensure our customers receive more accurate pricing for their particular vehicle,” he said.
Whiting acknowledged that car insurance premiums had now risen by so much that they could start changing households’ decision-making on which cars they were willing to buy.
“I think there’s an opportunity for us to talk to consumers – buy this car versus that car, because it’s going to cost less to repair, and therefore you might need to look at your insurance premiums,” she said.
People buying homes often now checked to see what it would cost to insure, Whiting said, something that was of growing importance as insurers moved down the track of greater risk-based pricing.
That was something that customers should do when considering which car to buy, she said.
“It can be quite a significant part of the cost of owning a car.”