Age and Insurance
HELPING CUSTOMERS UNDERSTAND INSURERS’
USE OF AGE IN MOTOR AND TRAVEL INSURANCE
JUNE 2014
INTRODUCTION
The UK has one of the most highly developed insurance markets in the world. A large
number of insurers offer a wide range of products that meet different customer needs. These
products protect people and businesses against the risks of unforeseeable events
associated with everyday life.
The insurance industry is committed to treating people fairly and providing cover at a fair
price and on reasonable terms. Insurers are opposed to unfair discrimination in society.
As part of this commitment, the ABI signed up to a voluntary agreement with HM
Government in 2010 to publish annual data for private motor and travel insurance from 2012.
This aims to improve transparency, so that consumers can be confident that age is relevant
to the assessment of risk and pricing of those products.
A full list of data contributors can be found on page 8.
METHODOLOGY
Travel insurance
The average cost of a claim per policy is calculated by dividing the total cost of claims
notified in a year by the number of policies in force in the year.
The average premium is calculated by dividing the total amount of premium by the number
of policies in force in the year.
The claims frequency is calculated by dividing the number of claims notified by the number
of policies in force in the year, shown as a percentage.
Motor insurance
The average cost of a claim per policy is calculated by dividing the total cost of claims
notified in a year by exposure1 during the year.
The average premium is calculated by dividing the total amount of premium income by the
exposure during the year.
The claims frequency is calculated by dividing the total number of claims notified in a year by
the exposure during the year, shown as a percentage.
1
Exposure is the amount of risk on a motor policy that is ‘exposed’ during the year and is measured in
vehicle years. For example, if a policy covering 1 car came into force on 1 July 2012, this would be
reported as an exposure of 0.5 vehicle years as the policy was only in force for ½ of the year. The
remaining 6 months of the policy would be reported as 0.5 years during 2013.
2
IMPROVING TRANSPARENCY FOR CUSTOMERS
Insurance pricing
Insurance companies can use personal information to work out what cover they can offer
and the premium they will charge to individual customers. Insurers decide what they will offer
based on the customer’s personal information, claims they have had in the past, actuarial
modelling and any other information available to them.
Insurers will ask a number of questions before providing an insurance quote. Different
factors are used to predict the chance of a group of customers making a claim, and how
much claims will cost each year. Only a proportion of policyholders will make a claim in any
one year.
Competitive markets drive insurers to ensure that the premiums they charge are appropriate
to cover the risk posed, but no higher than necessary. They also encourage them to identify
opportunities for new products, and specialise in niche markets, that meet the needs of
different groups of people.
How do insurers use age in pricing?
For some types of insurance, including travel and motor insurance, a customer’s age can
provide a good indication of how likely they are to make a claim, and how much those claims
will cost.
Motor insurers will use a customer’s age alongside a combination of other risk factors,
including the type of vehicle, driving experience, address and occupation. For both younger
and older drivers, age will be a significant indicator of the likelihood and severity of a claim.
Travel insurers use relatively few rating factors in order to keep costs down and ensure
cover is widely available. Average medical claims tend to increase gradually with age from
18 until early 60s, and more rapidly for older travellers.
3
AGE AND TRAVEL INSURANCE
Why travel insurers use age when pricing cover
Travel insurance is primarily designed to cover the cost of emergency medical treatment and
repatriation should you become ill or injured abroad. It can also offer other types of
protection, including cover for cancellation, lost luggage and delays.
Relatively few rating factors are used in setting the price for travel insurance. This simple
approach keeps prices low and allows a diverse range of distributors to operate in this
market.
The use of age in the assessment of risk is therefore very important to travel insurers. This is
because the main component of travel insurance claims is medical-related claims, and these
are closely correlated to age.
Annual and single trip travel insurance
Annual trip insurance provides cover for a potentially unlimited number of overseas holidays
during the course of a year. Single trip insurance covers individual holidays, which enables
insurers to provide a quote based on a person's risk at the time of travel, taking into account
where they are going and how long for. Claims costs can vary significantly based on the
destination, due to the cost of local medical facilities and transport links.
Over a longer period there is an increased risk of changes in medical circumstances. Older
travellers, and those with existing medical conditions, may therefore find that single trip
policies provide better value, as they can be more accurately priced for the type of holiday.
4
AGE AND TRAVEL INSURANCE
Impact of age on travel insurance claims and premiums
Chart one shows the percentage of customers claiming per policy, the average cost of a
claim per policy and the average premium for different age groups for private travel
insurance in 2012. It shows the claims costs and premiums or people aged 18-20, 21-25 and
so in in five year bands until age 90. All policies for people aged 91 and over have been
grouped together.
Chart One
£200
20%
£180
18%
£160
16%
£140
14%
£120
12%
£100
10%
£80
8%
£60
6%
£40
4%
£20
2%
£0
0%
Average claim per policy (£)
Average premium (£)
Claims frequency (%)
ABI data for 2012 shows that:

People aged 61-65 were twice as likely to make a claim as those aged 31-35.

The average cost of a claim per policy for people aged between 71 and 75 was six
times greater than for travellers aged 21-25.

The average cost of a claim per policy for travellers aged 91 and above was £191,
while average premiums were £132 for that group.
5
Claims frequency %
Average cost of a claim per policy (£) /
Average premium (£)
Average cost of claims per policy, claims frequency and average premiums for travel
insurance by age, 2012.
AGE AND MOTOR INSURANCE
Why motor insurers use age when pricing cover
Motor insurance is a compulsory insurance. It pays compensation to anyone a driver might
injure, or whose property they might damage in the event of a collision. It can also provide
cover for the policyholder's vehicle in the event of accidental damage, fire and theft.
There are a large number of different rating factors used in setting the price for motor
insurance. These include factors associated with the vehicle, where it is kept and the people
who drive it. Insurers’ claims experience shows that age can materially influence both the
likelihood of policyholders making a claim and the cost of such claims when they occur.
Insurers typically use an individual's exact age in years and months when assessing risk.
The impact of age is especially important at both younger and older ages. In general, risk
declines rapidly from 17 to 21 as younger drivers quickly become more experienced, and
continues to decline through to the late 50s or early 60s before starting to increase again.
‘Pay how you drive’ motor insurance
‘Pay how you drive’ motor insurance policies, often known as telematics or ‘black box’
insurance, take into account how the vehicle is used when setting the premium. This market
is still developing and can enable insurers to offer premiums that are more tailored to the
individual customer than is possible with a traditional motor insurance policy.
‘Pay how you drive’ policies use GPS technology to measure how a vehicle is being driven –
insurers then use this information to make judgements about driving performance. This
information is considered together with other traditional risk factors, such as a driver's age
and occupation, to set premiums. ‘Safe’ drivers will usually benefit from lower premiums than
‘less safe’ drivers. This may help young, safe drivers reduce their premiums more quickly
than with a traditional policy.
6
AGE AND MOTOR INSURANCE
Impact of age on motor insurance claims and premiums
Chart two shows the percentage of customers claiming per policy, the average cost of a
claim per policy and the average premium for different age groups for private motor
insurance in 2012. It shows the claims costs and premiums or people aged 18-20, 21-25 and
so in in five year bands until age 90. All policies for people aged 91 and over have been
grouped together.
Chart Two
Average cost of claims per policy, claims frequency and average premiums for motor
insurance by age, 2012.
20%
18%
£1,200
16%
£1,000
14%
12%
£800
10%
£600
8%
6%
£400
4%
£200
2%
£0
0%
Average claim per policy (£)
Average premium (£)
Claims frequency (%)
ABI data for 2012 shows that:

The average cost of a claim per policy for drivers aged 18-20 was twice as high as
for those aged 26-30.

Customers aged 26-30 were twice as likely to make a claim compared to 66-70 year
olds.

Drivers aged 86-90 were less likely to make a claim than those aged 56-60, but the
average cost of a claim per policy was almost twice as high for the older group.
7
Claims frequency (%)
Average cost of a claim per policy (£) /
Average premium (£)
£1,400
CONTRIBUTORS
The companies listed below have contributed data to this publication.
Company
Motor

Travel



Ageas Insurance Limited


AIG Europe Limited


Aioi Nissay Dowa Insurance Company of Europe Limited


Allianz Insurance plc




Aviva Insurance Limited


AXA Insurance plc


AXA Insurance UK plc




CIS General Insurance Limited


Covea Insurance plc


Direct Line Group


Ecclesiastical Insurance Office plc


Enterprise Insurance Company Plc


esure insurance Limited


EUI Limited


Evolution Insurance Company Ltd


Acromas Insurance Company Limited (AICL)
AGA International S.A.
Astrenska Insurance Limited
Bupa Insurance Limited


Groupama Insurance Company Limited


Highway Insurance Company Limited


Liverpool Victoria Insurance Company Limited


Lloyd's


Markerstudy Insurance Company Ltd


Mulsanne Insurance Co Ltd


National Farmers Union Mutual Insurance Society Ltd


Octagon Insurance Company Limited


Preserve Insurance Company Limited


PTI Insurance Company Limited


QBE Insurance (Europe) Limited


Sabre Insurance Company Limited


Service Insurance Company Limited


Skyfire Insurance Company Limited


Southern Rock Insurance Company Limited


Tesco Underwriting Limited


Tradewise Insurance Company Limited


Trinity Lane Insurance Company Limited


Zenith Insurance Plc


Zurich Insurance plc (ZIP)


FirstAssist Group Ltd
8