Car insurance: anomaly in UK market or sensible?

[actuary21c]

Disclaimer: I am not a general insurance actuary (as may be obvious from this post, so forgive me if I am missing something that is well known to GI/CAS actuaries).

Instead, one of my hobbies is music, and I play double bass in a couple of local amateur orchestras. As my occupation is listed as actuary/company director, I have never had a problem with car insurance. However, I was very surprised to learn that this is far from the case for another double bass player in the orchestra (details below).

Although you'd be surprised that double basses can fit in relatively small cars (normally for a hatchback [UK term for a car where the back lifts up and the back seats go down, useful for transporting things; I don't know the US equivalent] with the neck [=top] of the bass fitting between the seats and getting close to the gear stick), most double bass players naturally prefer to drive estates. I personally drive a Volvo V70, which for me gives the best of both worlds (space for musical instruments such as double bass, keyboard, amplifier etc.) when I want it, but also a luxury feel with leather seats, nice steering wheel, very quiet when driving on motorways, comfortable ride, plenty of space etc.

However, I was chatting to one of the other double bass players in one of the orchestras and very surprised by what he told me. He is a young man who is 19, having a gap year before going to music college, who is earning some money playing jazz in various bands during evenings/lunchtimes during the week and weekends. He told me last week that he is having a real problem getting affordable car insurance, apparently because the UK car insurance industry doesn't seem (to this non GI actuary at least) to differentiate much between:

• the average 19 year old male, who might be felt to be a bit of a boy racer, and
• a musician, who drives a more sedate car (estate rather than sporty car), and doesn't/can't drink much because when he goes to pubs he is typically working.

The premiums he has been quoted for the following proposed vehicle (a 2002 130PD (=130 bhp engine) VW Passat SE Estate Turbo Diesel, value approx £2,000) are around £3,000 per annum for fully comprehensive, and only a few hundred pounds less for 3rd party insurance. (i.e. in each case, the insurance for 1 year costs more than the vehicle itself!)

I could understand this if it were a young man trying to drive fast to impress women/friends/bolster his ego, and thought to be a high risk because the insurer thinks that he is likely to drink too much. (Unfortunately in the UK there has been - and continues to be- a culture of "let's go down the pub and get the beers in", "the beers" meaning 3,4+ pints, when anything over 1 pint is likely to make the driver over the legal limit).

He says that he would be offered a lower premium if he put his occupation down as "unemployed" rather than "musician"!

Am I being naive, or is this a case where an insurer could usefully distinguish between different kinds of risks posed by different types of young men? Is there a gap in the market where an insurer could, after a bit of research/underwriting, and by attaching special conditions to the policy (e.g. no alcohol to be drunk whilst using the vehicle for transport to and from music performances) offer a lower premium to young male musicians?

What is the situation like in the US market?
Any enlightenment from US CAS members or UK general insurance actuaries gratefully received.

(Of course a factor here is that the vehicle is to be used for business purposes as well as personal/pleasure, but in reality, when a musician drives to and from gigs, is that really much different from someone else using their car to get to and from their place of work? The times of day are likely to be different, because the musician will be performing typically on evenings and occasionally Sunday lunchtimes, so perhaps collisions with other drivers who may be drunk are more likely. However, in practice, musicians typically leave the pub quite a bit later than the pub's customers, because it takes time to load the car with amplifiers, bass, help the drummers load up, etc.. Another factor might be the appearance of the word "Turbo" in the car model's name, but this is a diesel car, and turbo diesel does not make it a sporty/fast car.)

[campbell]

Could you explain some of your terminology -- is an "estate" an SUV or a sedan or what?

Curious: is there group auto insurance in the UK? Sometimes you can get good insurance deals for affiliation groups [or through employers] - the group members individually pay premiums, but because of certain good qualities of the group they can get favorable rates.

The problem with "musician" is it doesn't distinguish between a member of the Sex Pistols or a member of the Royal Philharmonic. But if the orchestra, or orchestral musician club, got a deal with an insurer, they might be given better rates given the [normally] sedate lifestyle of those playing in an orchestra.

[actuary21c]

Originally Posted by campbell

Could you explain some of your terminology -- is an "estate" an SUV or a sedan or what?

Curious: is there group auto insurance in the UK? Sometimes you can get good insurance deals for affiliation groups [or through employers] - the group members individually pay premiums, but because of certain good qualities of the group they can get favorable rates.

The problem with "musician" is it doesn't distinguish between a member of the Sex Pistols or a member of the Royal Philharmonic. But if the orchestra, or orchestral musician club, got a deal with an insurer, they might be given better rates given the [normally] sedate lifestyle of those playing in an orchestra.

Hi again, mpc. A UK "estate" car seems to be what you in the US call a "station wagon", i.e. a car designed to make it easy to transport furniture, large dogs, large TV screens, or simply a large family. Translating again, what you call a sedan, we in the UK call a saloon .

I think that group deals probably do exist, but for professional orchestras and not for local amateur orchestras like the ones I play in. In any case, my young friend is wanting insurance for his gap year job as a band double bass player (playing jazz, swing etc.) rather than for playing in the amateur orchestra (which he pays for, like I do, rather than getting paid!). (Our subs = "dues" go towards paying for the professional conductor, orchestra leader, and music/venue hire etc.).

Again, if the UK car insurance industry only has one classification for "musician", then isn't there a case for companies to break down this category (which as you point out seems too wide) into smaller, more homogeneous sub-categories?

[MountainHawk]

This comes down to the standard question of: How much classification is the right amount? Here in the US, I think the standard is even more broad than 'musician'; a classification scheme of something like 'blue collar/white collar/professional' is probably not uncommon. Occupation is also a bit of a controversial rating variable in the US, I believe it is prohibited in some states.

The question facing the insurer is if you divide the classification into enough different groups so that a 19 year old orchestral musician is in a different class than a 19 yr old rock musician, do you end up with so many classes that credibility is shot and you have rates that are influenced by too much randomness. Now, from what I understand, the UK market is ahead of the US market in modelling for personal lines (I haven't worked in personal lines for almost a decade), so maybe the models can overcome this.

Otherwise, your friend should try to find an insurer whose target market is the young, because they are likely to have a more refined class plan for young people, as they attempt to skim the cream of the broader classes competitors use.

[Maphisto's Sidekick]

If memory serves, the UK auto insurance market is completely deregulated when it comes to pricing, and I'm under the impression that British auto insurers have come up with some pretty sophisticated profit optimization models.

Assuming that my recollection and impression are correct, I wouldn't be terribly surprised to find that an employed musician pays more than an unemployed individual by virtue of employed people typically having more money available to spend than unemployed.

Another possibility would be to consider the hours which most musicians work. Some of the experiments in GPS rating in the States have shown pretty convincing evidence of just how much riskier evening/nighttime driving is as opposed to driving during "normal" working and commuting hours.

[GargoyleWaiting]

Sounds like one for a very sophisticated pricing model!
What we're looking at would be to introduce a correlation between occupation and car?
So..
19yo musician with old van = wannabe rock star = bad
19yo musician with estate car = member of an orchestra = good

I suspect there's not enough data for this one. There's enough rating factors out there for car insurance, without combining the ones we've got!

[Random Walk]

Originally Posted by actuary21c

...for a hatchback [UK term for a car where the back lifts up and the back seats go down, useful for transporting things; I don't know the US equivalent]...

Aside:
The US equivalent for "hatchback" = "hatchback".

[BassFreq]

The loss costs for the average 16-19 year old is roughly 2 to 3.5 times that of the average 30-60 year old, depending on the coverage. (based on http://www.iihs.org/research/hldi/fa...ted_driver.pdf )

For most coverages, at most companies, here in the states, station wagons pose a slightly lower than average loss cost.

Pricing relativities for "musician" (if it is accounted for in the pricing to begin with) is likely not as high as the relativity for age=19. If the insurer is differentiating based on the fact that he is a musician, I'm certain they're failing to account for the fact that he plays upright and not electric or, even worse, that he's a bassist and not a drummer.

(fyi - My opinion may be somewhat biased as I am also a bass player as is the guy in the office next to me.)

[jazzape]

Beyond what has already been posted:
1). Likely getting another debit for being unmarried.
2). People tend to provide more accurate descriptions of their profession than mileage driven. Unemployed people generally drive fewer miles during non-peak hours, creating lower exposure.
3). May be a very slight modification for the "Turbo" model. There are a few "souped" up models which have shown very poor experience in the states (according the Insurance Institute for Highway Safety)
4). I have to imagine that there are some companies which specialize in offering cheaper lower liability limit policies to younger drivers.

[actuary21c]

Many thanks for the responses.

I don't think insurers in the UK (in fact it is probably European Union law that matters most here, because of the requirement to have a "level playing field" across the common market for financial services) have any legal restriction on using occupation as a rating factor.

Some further information: he has been driving for 18 months, and in that time he has had no accidents and no parking or speeding tickets.
I agree that the major factors are likely to be the fact that he is male, only 19 and occupation is musician. In fact, the occupation seems to be the major factor: a friend of his, of the same age and also male, who is a car mechanic and does drive a souped up-car pays a premium of £1,800, so 60% of what he has been quoted).

BassFreq: I'm not surprised by your statistic of the loss frequency for 16-19 year olds [incidentally, 16 year olds aren't allowed to drive in the UK, the minimum driving age is 17] being up to 3 times higher than that for 30-60 year olds. That is what I would have expected.

However, my annual premium (as a 45 year old actuary, with >10 years no claims discount) is about £400, so the multiple quoted to my friend is 7.5 times higher at £3,000, and my Volvo estate is probably worth £7,000, so more than 3 times the Golf estate that my friend wants to insure.

Perhaps that's right, if a musician really is twice as risky as a car mechanic, and a 19 year old is 3 times as risky as a 45 year old, and add in something for my 10 year plus no claims discount.

However it seems a bit excessive to me.

(NB he has tried finding companies who specialise in younger drivers - one of these quoted him £12,500! The conclusion I come to is that some insurance companies don't want business from 19 year old "musicians" - they probably think that they're all semi-permanently drunk/stoned ).