One of the unexpected pleasures I get from working in Insurance is understanding the underlying causes of my modelling work. And for the best part of a year, I have been immersed in developing our Postcode data product designed specifically to understand the insurance risk and market prices of UK Motor insurance.
Despite their geographical separation, Merthyr Tydfil and Coventry exhibit a remarkable resemblance in their housing stock. Both areas are dominated by terraced houses, relative to other dwelling types found across the UK.
Powerhouses of the Industrial Revolution
As I dug deeper into the two areas, I discovered that Merthyr Tydfil was once the ‘Iron Capital of the World’ and two centuries ago it was the source of 40% of Britain’s exports and was by far the largest town in Wales, as coal mining ceased in the area the town slowly lost its prominence. Following WW II Merthyr Tydfil had an industrial revival with a large assortment of manufactured goods being produced, notably the Hoover washing machine used to be made here, and even the Sinclair C5 (a very early, but not well received, electric vehicle)
Coventry on the other hand whose industrial heritage was in producing silk ribbons and watchmaking is on the opposite end of the spectrum from the Iron factories of Merthyr Tydfil, which would not explain the similarities in the type of housing seen in the two towns.
Post war boom
WW II, however, brought about a great change in Coventry. A city that was heavily bombed during the war, it was subsequently rebuilt with a prosperous post-war automotive industry offering numerous employment opportunities. Coventry was where the first motor car was made by Daimler (1897) and after the war the high-growth motor manufacturers industry set up factories in the area, and large housing estates were built to accommodate the workers.
So, although both places have very different heritages, today both places can be characterised by a larger proportion of terraced housing.
It's not these areas are just terraced houses, but we do need to classify postcodes into relatively homogeneous groups for pricing.
We use a variety of clustering methods, to create relatively homogenous groups across the country. It is critical to understand the composition of each cluster.
Similar local trends
The similarities were reinforced with similar attributes appearing in Hyndburn, Lancashire and the Rhondda Valley which borders Merthyr Tydfil. Both areas played significant roles during Britain’s Great Industrial Age experiencing rapid population growth as the mining and manufacturing sectors boomed. Lancashire, especially the cotton textile industry, is regarded as the ‘cradle of the industrial revolution’, and in 2021 the Hyndburn council approved three streets on a new housing estate to be named after three processes used by the East Lancashire cotton industry to celebrate the borough’s heritage. The Rhondda Valley, on the other hand, was particularly rich for steam coals which fuelled steamships of the 19th and early 20th century.
One thing all these areas have in common is a great industrial heritage and a large population growth in a short period of time, leading to rows and rows of terraced housing being built.
Pebbles: Overcoming the devil in the detail
After, much research, we have created a special Pebbles variable that has ranked the types of dwelling found in areas, which is consistent across the UK. These variables firstly group individual areas in the UK based on similar dwelling type numbers then rank the dwelling type from most prominent to least. As an example, this post focused on discussing areas that have a larger proportion of terraced housing. Flats are not so common in this group, localised housing development booms that relate to flats occurred much later than these areas.
These Dwelling groupings is best used to help explain a firm's postcode rating by dwelling types. Transparency in pricing has always been important, more so now with the FCA and Consumer Duty both looking at better customer outcomes. With these groupings, a firm can improve the transparency of their rating.
Our postcode data is live in the market, and we have a number of firms currently conducting their own retro analysis and we have had excellent feedback. So if you are in the business of selling motor insurance, contact us, Daniel Holland or Sherdin Omar to get a retro analysis going.
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