Fuelling a debate

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The introduction of eco-friendly motor insurance shows underwriters are considering environ- mental concerns but are such policies ground-breaking or just a gimmick? Richard Cohen reports

There is a growing awareness of the damage occurring to the environment as a result of human activity and, as a result, motor insurers have started to jump on the eco-friendly bandwagon with 'green' product launches.

For example, the Co-operative Insurance Society and More Than recently launched eco-friendly motor policies to reward people who drive environmentally friendly or hybrid cars with premium discounts (PM, 25 May, p3). Axa, Groupama and Norwich Union, via broking service Climatesure, are also playing their part by helping eco-conscious organisations pour money into offsetting the effects of harmful CO2 emissions.

Yet some rival insurers have slammed these efforts as mere gimmicks, saying that promises of discounts are simply unadulterated marketing ploys that piggyback on the emotive subject of global warming - especially as the drivers of such cars tend to be better risks anyway so they already pay less.

So is this attack unfair criticism of efforts that encourage more people to drive environmentally friendly cars?

Adrian Webb, a spokesman for Esure, says: "We welcome the arrival of cleaner cars but premiums should be based on risk and there is no evidence that an environmentally friendly car represents any different risk. This is not an insurance issue but a marketing issue dressed up as one. Everyone supports this type of move but it is not being done with any transparency in the general insurance market."

Direct Line's head of car insurance, Paul Baxter, claims: "We tend to think that these special discounts could be more of a marketing gimmick. Anyone who is a safe risk should find their premium is low regardless of any so-called discounts."

Defending his company's stance, More Than's head of motor insurance, Keith Maxwell, reveals that discounts on its scheme for driving green cars are on top of any discount for being a good risk. Other insurers that have launched eco-friendly motor policies also stress that all businesses should start thinking about the environment, and this is just the start of the insurance industry's efforts to encourage people to drive greener cars.

More Than's research prior to its product launch found that seven out of 10 people in the UK would consider switching to a hybrid car if they were cheaper to run than normal cars. A total of 58% would also consider switching if they could benefit from cheaper motor insurance.

Interestingly, neither CIS or More Than are actively marketing their products with high-profile campaigns - although More Than plans to eventually make a big splash. CIS, on the other hand, admits its reason for not doing so is that it is sensitive about accusations of its product being a gimmick and will wait before committing to any specific advertising.

The specifics of More Than's product is that it claims to save drivers on average of 6% if they drive a hybrid car, although the rate cuts can range from between 3% to 13%. CIS is also offering discounts to drivers of eco-friendly cars, while at the same time offsetting what it claims is 20% of CO2 emissions for every vehicle insured under its eco-insurance product through direct funding of eco-projects.

Climate Care, a carbon reduction organisation that funds efforts to reduce the effects of global warming, has also launched a motor insurance broking service called Climatesure, where it will donate money to carbon-cutting initiatives in the developing world every time someone buys cover from its 23-strong insurer panel.

It claims to have convinced Axa, Groupama and NU that such drivers are better risks, and as a result the trio are contributing to the money given by Climate Care to various carbon-reducing projects - although its customers will not receive specific premium discounts.

Groupama, however, is remaining cautious about the future of this fledgling market and says it is not yet convinced that green drivers represent better risks despite supporting Climate Care's initiative. Andrew Goldby, Groupama's director of motor underwriting, explains: "It is difficult to establish if the growing green lobby is just the latest fashion or a genuine, long-term trend."

On the vehicle front, figures would certainly suggest an upward trend in eco-friendly sales. The number of hybrid cars registered in the UK rose by 74% from 2004 to 2005, and predictions have been made of one billion such vehicles on the world's roads by 2020.

Contrary to these predictions of growth, motor website and magazine Auto Trader claims that environmental issues are the last thing people look at when buying a car. According its recent survey, the two most important features when buying a car are comfort and security for more than 90% of motorists, while 40% are not concerned whether their vehicle is environmentally friendly.

Growing market

Mr Maxwell, however, expects the market for eco-friendly motor products to grow in time. His beliefs are based on the high growth predictions of hybrid cars sales worldwide driven by rising petrol prices and concerns over climate change. "Insurers have to recognise this and understand that consumers have expressed interest in alternative transport and are becoming more environmentally conscious. Our product is a starting point for us and we will look at offsetting CO2 emissions later," he argues.

CIS director of general insurance David Neave also believes this is a growing market and points to his firm's ethical background to back-up claims that the new product will do its bit to help encourage people to drive more environmentally friendly cars.

Asked about other insurers that have looked to help the environment through motor policies, Mr Neave questions whether they have the same ethical background as CIS to be able to defend accusations that their products are nothing more than marketing gimmicks. He adds: "This is our step into the market and, while we are not expecting massive sales immediately, it is about growing the segment over time."

Concerns have also been expressed over whether the motor market - which already experiences tight margins due to its highly competitive nature and current soft cycle position - can afford to be dropping premiums further. Mr Neave responds: "We are not in business to lose money but we are taking a lower return on this and over time we hope we will have better retention ratios."

For its part, Climate Care says it does not have the funds to launch a large-scale media awareness campaign and is relying mainly on public relations to get its message across. Head of Climatesure Phil Denman concludes: "Insurers have had to deal with flooding so they know environmental factors play a part in the industry. Preventing climate change is important. These schemes are just the beginning."

HOW INSURERS CLASS 'GREEN' CARS FOR THEIR POLICIES

Co-operative Insurance Society: Those that are in the government's Band A for excise tax with CO2 emissions up to 100g/km.

More Than: A hybrid car is one that uses two or more sources of power to provide propulsion - the majority are a petrol-electric car combination. Such cars will see their insurance group rating reduce by two groups - UK vehicles are allocated an insurance group rating on a scale of one to 20 where the lower the rating, the lower the premium.

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