Actuarial pricing, capital modelling and reserving

Pricing Squad

Issue 8 -- November 2016

Welcome back to Pricing Squad!

Pricing Squad is a newsletter for fellow pricing practitioners and actuaries in general insurance. Enjoy, and let me know your comments and ideas for future issues.

In today's issue, find out about the different ways in which people price voluntary deductibles, and how 95% of insurers could improve their strategy.

Confused deductibles

I know experienced underwriters with the ability to simultaneously believe two conflicting rationales about deductible pricing.

On the one hand, risk should decrease when deductibles are high, as more risk is retained by the policyholder.

But the risk can also increase with high deductibles because people who choose high deductibles may do so recklessly, simply to save premium money. These people are high-risk.

Is this confusing to you as well?


Here is what I have learned about real-life deductible pricing, based on 703 quotes collected from a price comparison website last week (you can find out even more by ordering a full report, described later).

  1. No less than 33 out of 75 providers make the mistake of charging less for a lower deductible than for a higher one!

    In one instance Axa's premium is £846 when the driver chooses a £100 deductible but only £833 for zero deductible. This makes drivers who want a sensible £100 deductible choose no deductible instead. This way Axa loses money twice -- once on increased claims and then again on reduced premiums.

  2. A smaller problem occurs when a provider offers a flat price for two deductibles. This happens for a staggering 47 out of 75 providers. These insurers are losing money on increased claims from drivers who are incentivised to choose a lower deductible over a higher one.
  3. The other end of the bad-deductible-pricing spectrum is giving away too much premium for increased deductibles. 25 out of 75 insurers make this mistake.

    In one instance, Esure quotes £1,474 for zero deductible and only £1,138 for a £100 deductible. That's a discount of £336 for a £100 reduction per claim! The claim frequency in the £100 claim band would need to be approximately 336 / 100 = 336% to justify such a massive discount.

Strangely, it seems that most providers run into at least one of these challenges.

But not all. Insure The Box is one managing agent who has found the sweet spot.

Can you see the moderate reduction in premiums as deductibles progress? The implied claim frequency in each claim band (which can be calculated as in the Esure example above), ignoring expenses, is 10-30%. This makes good sense to me.


Overall, seven out of 75 providers got deductible pricing mostly right:

  • Insure The Box
  • Flux Direct
  • Barry Grainger
  • General Accident
  • Screentrade
  • Tesco Bank Cover+

Providers who have the most to improve are:

  • MasterQuote
  • One Call Direct
  • Hastings Essential
  • A Choice
  • NCI
  • M&S Bank
  • M&S Bank Premier
  • Swinton Classic
  • The Policy Shop
  • U Drive Cover Limited

Thanks for reading!

Get the full Clean Deductibles Report

To find out even more, you can order the full Clean Deductibles Report for only £120 + VAT by emailing me at today.

The full Clean Deductibles Report contains:

  • the full ranking of 75 providers based on their approach to deductible pricing
  • detailed ilustration showing how 75 providers deal with each deductible level
  • a summary showing how each provider handles Third Party Fire & Theft and Third Party Only pricing
  • a comparison of claim frequency in each deductible band implied by each provider's pricing
  • a summary of how the market as a whole prices deductibles

The following providers are included in the Clean Deductibles Report: 1st CENTRAL Plus, 1st Central Premier, 1st CENTRAL, A Choice, AA, Admiral Littlebox, Admiral, Autonet, Axa, Barry Grainger, Bell from Admiral, Brightside, Budget, Churchill, Coverbox, Debenhams, Dial Direct, Endsleigh, ESInsure, esure broker, Esure, Flux Direct, General Accident, Go Girl, GoSkippy, Halifax, Hastings Direct, Hastings Essential, Hastings Premier, Hyperformance, iGO4, Insurance Factory, Insure 2 Drive, Insure Wiser Platinum, Insure Wiser, Insure Your Motor, InsureOK, insurethebox, Just Motor Insurance, Kwik Fit Insurance Services, Kwik Fit Platinum, Legal & General, Lloyds Bank Car, LV= Plus, LV=, M&S Bank Premier, M&S Bank, MasterQuote, My Motor Quote, Nationwide, NCI, One Call Direct, One Quote Direct, Peoples Choice, Post Office, Premium Choice, Privilege, Quote A Car, Quoteline Direct,, RAC, Santander Car Insurance, Screentrade, Sheilas Wheels Broker, Sheilas Wheels, SureThing, SureThing-Max,, Swinton Classic, Swinton Essentials, Tesco Bank Cover, Tesco Bank Cover+, The Co-operative, The Policy Shop, U Drive Cover Limited.

Copyright © 2015 Jan Iwanik, All rights reserved. You are receiving this email because you are subscribed to updates from We publish data & analysis for informational and educational purposes only. You can unsubscribe from this list by emailing us.