The establishment of a new database developed by LexisNexis is drawing support among some of the leading motorist insurers in the United Kingdom as a way to eliminate fraud among drivers that lie about their past driving habits in order to earn discount rates, according to Craig Beattie, a senior analyst in Celent's insurance practice working out of the consultancy's London office.
In the UK, drivers can build up what is known as a “no-claims discount” (NCD), which Beattie explains is measured in the number of years of insurance an individual driver compiles without making a claim.
According to MoneySupermarket.com, insurers calculate the no-claims discount in different ways, but it usually builds up each year to a maximum of five years. Motorists can typically expect to earn a 10 percent discount after one year of claim free driving; a 20 percent discount after two years; 30 percent after three years; 50 percent after four years; and up to 75 percent after five years.
If a driver choses to switch insurers, as is common in the UK now, according to Beattie, the old insurer can issue the driver a paper document certifying that the driver has an NCD of a certain number of years. This is forwarded to the new insurer and typically this takes up to a month after the coverage with the new insurer starts, according to Beattie.
“Five years or more NCD can result in a very significant discount, some 75 percent of the premium,” says Beattie. “But since the insurer can't repudiate the NCD until it has received the document insurers suffer from fraud and covering drivers for up to a month who claim to have many years NCD but actually have none.”
The latest attempt to automate the NCD process has come from LexisNexis with an open source platform that serves as a shared database to automate the NCD process. The company has a dozen insurers lined up for the service, which it hopes to have operating in the second quarter of this year, according to the Insurance Times.
“This initiative has been attempted multiple times over the past few decades,” says Beattie. “Cooperation rather than technology has been the impediment in the past.”
Beattie believes this latest effort might work because insurers around the UK have teams manually checking these certificates looking for fraud.
“Typically the large players in UK motor insurance didn't engage as it diminished their competitive advantage,” he says. “A few insurers dominate the UK motor insurance market and operate multiple brands—meaning that many of the switches are occurring internally to the insurer so they can self-validate. By not engaging they improve their cost base relative to their competitors. LexisNexis have taken a route engaging with both insurers and brokers (independent agents) and will have a significant chunk of the market at launch.”
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