The History of Motor Insurance

In this section we have written a basic history of car insurance to show you how the same has developed over the years and how it is likely to continue into the future.

The Birth of the Motor Car

Motor vehicles made their first spluttering appearance at the turn of the 20th Century but during the first years there was no requirement or consideration for the need of Insurance in any form.

In the early years of motoring there seemed little need to consider the implications and requirements of insurance. In fact the first vehicles to hit the open road were so cumbersome and slow, the common horse and carriage was considered much more efficient and faster at the time.

As with any technology, interest soon developed and the motor vehicle was developed and improved at an alarming rate. Within a short space of time the future of the motor car was guaranteed and its future uses were being heavily considered.

Car Insurance During the First World War

By the time of the First World War in 1914 the motor car had developed dramatically and its role was considerable during the conflict.

As a result of the war, many people were trained to drive the vehicles used in action. The implications of this meant a dramatic increase of interest in the motor vehicle.

By the end of the First World War (1918) people were returning from the conflict with an interest to continue their driving experience.

Even at this stage in time, no compulsory requirement for motor insurance existed.

The price of a motor vehicle was certainly out the price range of the common man until the availability of hire purchase in the 1920’s.

Hire purchase suddenly opened the gateway for many to afford their own motor vehicles and within a short space of time; they became a common sight on the roads of Britain.

Road Traffic Accidents

Due to the poor standards of driving skills and little road discipline, accidents soon became a common sight on the roads of Britain.

A situation soon became apparent in the fact that many who had taken on the cost of buying their own vehicles were now finding themselves out of pocket if their vehicles were damaged or destroyed.

The other side to this was the total lack of compensation for those innocent victims involved in these road traffic accidents, this situation led to the introduction of the first ‘Road Traffic Act’.

By 1930 the situation had escalated to such proportions that the government of the time introduced the first ‘Road Traffic Act’.

In basic form the Road Traffic Act made it compulsory for vehicle owners and drivers to be insured for their liability for injury or death to third parties whilst their vehicle was being used on a public road.

Motor Insurance had appeared sometime before this but it had not been compulsory.

Composite Insurers

(beginning to mid 20th Century)

Large ‘Composite’ insurers were dealing with most of the motor insurance business being handled at his time.

Composite Insurers were those dealing with several types of Insurance i.e.

Home insurance, life etc. For example: whoever insured you for anything at the time you would approach to insure your vehicle as well.

There was very little competition in the market during this time.

With the monopoly in trade available the Composite Insurers pooled together all their statistics and results to devise a schedule of rates and conditions.

Each insurer had to abide by these so as to eliminate any competition. Prices were set and charged at the same rate by all the Composites.

In addition to this, all policy conditions were set the same and all discounts set the same.

Tariff

Together these companies formed the Insurance ‘Tariff’ (The restraints implemented by the Tariff divided the market and some insurers refrained from joining. This gradual breakaway eventually led to the eventual dissolution of the Tariff in 1968)

Competition to the Tariff

During the early years two main groups remained outside the ‘Tariff’. These were:

The ‘Non Tariff’

Lloyds of London

The Non Tariff - They offered cheaper rates and variable discounts. The lower premiums forced the Non Tariff to be more selective to underwriting, and to accept only the better risks. To keep costs down the Non Tariff had economy administration and stricter claims procedures. Because the Tariff had set the rules and conditions they were able to accept the higher risk business.

Lloyds of London - Probably the best-known name in the Insurance world and established by a man named Edward Lloyd from a coffee shop in London. Once developed, Lloyds had an individual approach to insurance and specialised in ‘schemes’. For instance: Special schemes for Post Office workers, Clerical Staff and certain ‘types’ of vehicle were available. Lloyds were substantially different to other insurers in the way they worked and in the service they offered. Lloyds sold their product via the broking system. Brokers were those who sold the product on behalf of the underwriting Insurance Company. At the turn of the Century Lloyds had already established a substantial trade in ‘Fire’ and ‘Marine’ trade. (At this period in time Britain had the largest maritime merchant fleet in the world, therefore marine insurance was given huge priority at the turn of the 20th Century.) Lloyds had established a style of business involving ‘Syndicates’. The syndicate was made up of ‘Names’ who invested into the syndicate in the hope of receiving a dividend from the profit Lloyds would make. They also had to take the risk that Lloyds would make a loss through bad business and excessive claims which might then leave them liable to cover the costs. A classic example of this occurred in February 1989 when Britain was hit by severe winds that caused Billions of pounds worth of damage. Lloyds who had long been established found it easy to adapt to the new motor business and with the other ‘Non Tariff’ Companies they profited from this new market. One man, the ‘Underwriter’, held the responsibility of making or breaking business in the Insurance world. He was responsible for predicting what market would make them money and they are often referred to as ‘God’.

Insurance During the Second World War

During the 2nd World War there was a dramatic reduction in business due to the massive petrol shortages and the recruitment of so many into action.

Unlike the First World War, which saw a revolution in the development of the Motor industry, this War had an adverse effect on the motor industry and the motor insurance market, which established itself over the last 9 years.

The Second World War ended in 1945 and it appeared as though time had stopped because the motor insurance market picked up where it had left off in 1939.

Although the business of Insurance broking had been long established. A boom in motor Insurance Broking occurred during the 1960’s. Lloyds as we have established relied on the service of brokers to sell their product.

Insurance Brokers

Brokers worked on the basis they could deal with many different Insurance Companies.

Broking had become big business and the development of financial services allowed customers the simplicity of being able to spread their costs with easy payment schemes.

With the development of these Brokers and the simplicity in payment schemes, little else was required to make a successful High Street business.

On selling their product the insurance brokers could then receive a commission from the Insurance Company for selling the policy. In the early years the process of selling a policy to the man on the street was a simple and no hard sell was used. The customer would walk in off the street and the person behind the counter would simply give them a price for their motor insurance, based on their knowledge and a set of tables supplied to them via the Insurance Companies. If the customer were interested the broker would not force them to buy, they would simply offer them the opportunity of thinking about it.

In the early years of High Street Broking the whole procedure was very much based on the personal touch. The High Street Broker became a familiar face that offered his regular customers a friendly service. With the introduction of easy payment schemes, some customers would make more than one trip to the brokers during the year to pay their instalments, which enabled the brokers to establish themselves just as local shopkeeper would do.

In those days broking was a very manual and paperwork generated process. Although the Broker would give a relatively quick quote, if the customer wished to go ahead with the policy, the broker would then have to complete the paperwork relevant to the Insurance Company quoting the price.

The Broker might have 50 or 60 different Insurance Companies to quote from, therefore 50 or 60 different types of proposal forms they would have to learn.

When the Broker took the money from the customer the paperwork would then be forwarded to the Insurance Company. If there were any mistakes on the paperwork the Insurance Company would have to send it back to the Broker for completion before they could bill the Broker for the money. As you might imagine, some brokers could often make mistakes on the paperwork, knowing full well that it would come back, delaying the process.

Insurance in the 1970’s

The expansion and growth of the motor insurance market seemed endless until a significant day in 1971.

On the 2nd of March 1971 the largest insurer of the day ‘Vehicle and General’, owned by Dr Emile Saundra, collapsed overnight. At this time there had been a severe winter and Vehicle and General endured massive claims as a result of the careless regard for the risks they were underwriting from all the High Street Brokers.

Suddenly the general public found themselves in an unbelievable situation. All those who had taken policies with the Vehicle and General were now without cover and the High Street Brokers were besieged with business to replace the cancelled policies. You might have expected the customer to take out their frustration on the Broker, but the Broker actually thrived from the situation. There were that many people insured with the Vehicle and General at the time it collapsed, that the 2nd of March became very significant for the insurance world. Customers taking out new policies besieged brokers and for many Years to come March became the busiest period of the year.

During the 70’ and 80’s the High Street Brokers thrived and many household names became well established, for instance, ‘Swintons’, who were originally started in Swinton, Manchester.

Once again it seemed that nothing would stop the massive growth of Insurance and High Street Broking until the development of the ‘Computer’ .When Computers appeared of the scene, the likes of Swintons took full advantage of them. They were able to offer the customer a better and quicker service than that of the manually generated quote. The broker did not have to have so much knowledge and they were no able to offer quotes for people who did not live in the close vicinity of the area. The Insurance Companies also loved this because it meant that the mistakes made on the manually generated proposal forms were now little and far between, which meant that payment was now being made on time. In offering this to the Insurance Companies the likes of Swintons could now demand better discounts then the other brokers on the High Street. Before long Swintons had spread throughout the Country and became the biggest and best known Broker in Britain.

Computers had developed so much that their use had become very relevant. It seemed that the industry had undergone the biggest change that could ever happen, until a further, and bigger revolution occurred in 1985.

The Future of Motor Insurance

The Internet has, and is set to cause a revolution within the market place because of its interactive online capabilities.

The revolution of the internet will not be as quick as the little red telephone situation in the 80’s but its arrival marks the start of future communications and therefore a future in the business world.

The Motor Insurance Industry has seen much change over the past 100 years and it is not taking the prospect of the Internet and its implications lightly. Those who do are likely to be making a big mistake.

There is clearly a market developing for everyone to get cheaper insurance whether they want the high street, the call centre or the internet it is clearly a matter of choice at the moment and who knows where we might be in the next 100 years.

The most popular form of marketing and consumer interest at the present time is the insurance aggregators market place where customers can go onto price comparison sites such as Moneysupermarket, Confused.com, Uswitch and GoCompare. By typing in one question set the consumer is then presented with a variety of insurance prices from which they can then go to that company and purchase their insurance at competitive rates.One thing is for sure and that is that paper advertising and paper media is dying and being replaced with online solutions.