Written evidence from Confused.com (CMI
14)
1. BACKGROUND
1.1. The submission below is submitted on behalf
of Confused.com.
1.2. Confused.com was the first online price
comparison site for motor insurance launched in 2002. A subsidiary
of Admiral Group plc it has provided over 24.5 million motor insurance
quotes to 9.2 million customers in 2009. Confused.com is not a
provider of motor insurance, but acts as an acquisition channel
for its "partners" (insurance providers whose policies
are available to purchase via Confused.com).
1.3. The views represented here are of Confused.com
comparison site and not the Admiral Group as a whole. Confused.com
believes it has a dual role in the motor insurance industry: representing
customers and acting in their best interests to provide insurance
at the best price for their needs and circumstances. In addition,
Confused.com is committed to working with its partners to ensure
a successful, strong and sustainable insurance model which meets
customers' needs whilst delivering its objectives.
2. The submission has been broken down into four
areas as requested in the call for evidence. Further detail or
clarification is available on request where required.
3. THE REASONS
BEHIND RECENT
INCREASES IN
THE COST
OF MOTOR
INSURANCE
3.1. Premium inflation before 2010 has remained
flat for more than three years.
3.2. Claims costs however have been escalating
year on year.
3.3. The rise of comparison sites has served
to make the whole market of motor insurance prices more visible
to the customer. Whereas previously customers had to commit time
to ringing around a lot of individual insurance providers or trust
their current insurer to give them the best deal, they are now
able to compare a vast amount of providers in one place in a short
amount of time. This increased competition has created great value
to the customer.
3.4. Comparison has relaxed barriers to entry
of new providers to the market. It is easier than ever to enter
the motor insurance market and instantly have access to large
amounts of quotes through comparison sites. This increased competition
has also been a factor in keeping the consumer costs of car insurance
down.
3.5. Factors such as increasing costs of claims,
more injury payouts (where more drivers are making claims for
injuries that they may previously have not claimed for) and increasing
fraud (falsifying quote information in order to lower their insurance
premiums and the rise in fraudulent claims) have created a situation
where many providers are operating at an underwriting loss.
3.5.1. The impact of fraud is significant, whether
large- scale operations or simply embellishing personal injury
for compensation. The National Fraud Authority suggests that
dishonest insurance claims cost around £2 billion a year
and Cash-for-crash hotspots have been named in Birmingham, Liverpool,
Blackburn, Manchester and Leeds.
3.6. Due to the financial crisis and the extremely
low interest rates we are now experiencing, insurance providers
have lost significant revenue from investing their premium reserves
in the markets.
3.7. Uninsured drivers are also causing prices
to increase. According to the Motor Insurance Bureau (MIB) they
are costing the insurance industry around £500 million a
year. Covering the cost of uninsured drivers adds on average around
£30 to every motorist's policy.
3.8. In summary, on the whole, insurance providers
have not been increasing their premiums, however at the same time
their costs have been going up. Resulting in the situation where
on average the insurance providers are currently paying out £1.23
on claims and expenses for every £1 they earn in motor insurance
premiums, a unsustainable model.
3.9. The result of these circumstances has led
to the recent significant premium rises, as insurance providers
have reacted strongly to move towards a profitable model.
4. THE CONSEQUENCES
OF INCREASED
INSURANCE PREMIUMS
ARE AS
FOLLOWS:
4.1. Increased uninsured drivers. MIB estimate
that there are currently 3.6 million uninsured cars in the UK
at present. The risk is that people will be priced out of the
market when it comes to insurance and gamble with cover.
4.2. Increased Underinsurance - High premiums
will force drivers to reduce cover. They will likely either reduce
their insurance cover to Third party only policies or alternatively
reduce the amount of ancillary insurance products they have with
their motor insurance (eg legal cover, courtesy cars and breakdown
cover) in an attempt to mitigate prices rises and save money.
4.3. An increase in fraud, via cash-for-crash
large scale undertakings and in smaller ways (like non-disclosures
to get a better price), are likely. Inflated claims will put more
pressure on insurance providers' profit margins and will also
lead to more people having policies cancelled for deception in
the event they are caught, leading to a further increase in uninsured
drivers.
5. THE IMPACT
ON YOUNG
PEOPLE OF
THE HIGH
COSTS OF
MOTOR INSURANCE.
| | Annual % Change
| Average Premium
| |
| | 2009
| 2010 |
2006 | 2010 |
|
| Prop | Q1
| Q2 | Q3 | Q4
| Q1 | Q2 | Q4
| Q2 | % Increase
|
| 17-20 | 4.10% | 8.0%
| 2.8% | 5.4% | 8.5%
| 12.3% | 30.9% | £1,350
| £1,884 | 40% |
| 21-25 | 10.40% | -0.7%
| 2.2% | 6.7% | 14.8%
| 16.8% | 34.3% | £773
| £1,007 | 30% |
| 26-30 | 11.30% | 2.8%
| 4.4% | 7.1% | 14.1%
| 15.9% | 33.4% | £499
| £657 | 32% |
| 31-35 | 12.30% | 2.7%
| 5.9% | 7.7% | 13.6%
| 15.3% | 29.2% | £395
| £511 | 29% |
| 36-40 | 12.00% | 3.2%
| 6.8% | 8.1% | 12.4%
| 13.7% | 27.3% | £352
| £452 | 28% |
| 41-45 | 12.30% | 5.7%
| 9.1% | 7.3% | 12.2%
| 13.5% | 30.3% | £364
| £499 | 37% |
| 46-50 | 11.00% | 7.6%
| 10.4% | 7.6% | 12.5%
| 13.8% | 32.2% | £376
| £532 | 41% |
| 51-55 | 8.90% | 7.8%
| 10.9% | 8.1% | 12.7%
| 13.8% | 32.0% | £340
| £486 | 43% |
| 56-60 | 7.10% | 7.8%
| 10.7% | 8.3% | 11.5%
| 13.0% | 29.3% | £282
| £390 | 38% |
| 61-65 | 5.10% | 8.0%
| 10.7% | 8.2% | 12.0%
| 12.8% | 27.2% | £244
| £332 | 36% |
| 66-70 | 2.60% | 7.9%
| 10.7% | 9.5% | 12.6%
| 13.1% | 26.6% | £234
| £325 | 39% |
| 71 Plus | 2.90% | 7.5%
| 9.4% | 9.7% | 10.9%
| 9.5% | 18.7% | £260
| £336 | 29% |
| Total | 100.00% | 4.5%
| 6.3% | 7.3% | 12.6%
| 14.3% | 31.0% | £445
| £599 | 35% |
(Figure 1.1 - Source EMB Confused.com)
5.1. Young people suffer more than any other age group when
it comes to high insurance premiums. Young drivers have not only
historically suffered high insurance premiums; they've also been
hit hard by the recent increases in premiums by insurance providers
(see table above). On average young drivers pay far more than
any other age group throughout the motor insurance industry. Males
also suffer considerably more than their female counterparts.
(Source - EMB Q2 2010).
5.2. There are several reasons why the young are particularly
affected by high insurance premiums, including:
5.2.1. Make larger claims - Our research shows that
young drivers make larger claims than other drivers, despite driving
smaller or lower costs vehicles (see table below).
| 2008
| | 2009
| |
| No. of
Driver Claims
| Total
claim cost | Average
claim cost
| | No. of
Driver
Claims
| Total
claim cost | Average
claim cost
| Annual Claim Inflation |
| 17-25 Male | 574,151 | 1,348,190,401
| 2,348 | | 378,687
| 1,134,315,451 | 2,995 | 28%
|
| 17-25 Female | 343,296 | 619,253,964
| 1,804 | | 228,514
| 636,085,281 | 2,784 | 54%
|
| All Male | 1,804,431 | 3,973,030,466
| 2,202 | | 1,168,854
| 2,908,811,132 | 2,489 | 13%
|
| All Female | 1,258,467 | 2,123,714,153
| 1,688 | | 790,889
| 1,706,677,642 | 2,158 | 28%
|
| Total | 3,062,898 | 6,096,744,619
| 1,991 | | 1,959,743
| 4,615,488,774 | 2,355 | 18%
|
(Figure 1.2 - Source Confused.com)
5.2.2. Suffer higher claims inflation - Claims inflation
for young drivers is increasing at a faster rate than average.
Table above shows that both male and female claims costs have
rising above the average during 2008.
5.2.3. Typically young drivers are the most inexperienced
- Experience is key rating component of motor insurance and inexperience
results in higher premiums overall.
5.2.4. High costs of finance - Due to higher premiums many
young drivers have to pay for their insurance by monthly instalments,
rather than one upfront payment.
5.3. The impacts of high premiums for young drivers are:
5.3.1. High premiums will encourage uninsured driving
- Higher premiums make insurance less affordable, especially for
the young who have lower disposable incomes. This in turn increases
the likelihood of uninsured driving due to the fact they cannot
afford to legally drive.
5.3.2. Under insurance - Due to high premiums young
drivers are more likely to strip out cover they see as unnecessary.
Legal cover, courtesy cars and comprehensive cover might be sacrificed
to reduce the burden of insurance and result in drivers being
underinsured for their personal circumstances. Whilst this might
make insurance more affordable in the mean time it will impact
them more heavily when a claim is made.
5.3.3. Fronting - Fronting is already a major problem
in the industry, especially with young drivers. The probability
of fronting a policy will increase as premiums remain higher than
average.
5.3.4. Fraud - Insurance pricing is based on an application
form completed by the customer with "utmost good faith"
that the information provided is correct. Higher costs of insurance
might encourage drivers to manipulate their information or lie
on their insurance application forms to obtain cheaper insurance.
They may also exaggerate claim costs & bodily injury during
a claim
6. MOTOR INSURANCE
IS INFLUENCED
BY THE
PREVALENCE OF
ROAD ACCIDENTS,
INSURANCE FRAUD,
LEGAL COSTS
AND THE
NUMBER OF
UNINSURED DRIVERS
IN THE
FOLLOWING WAYS:
6.1. Road Traffic Accidents - Despite the rise in registered
vehicles, the number of accidents & people killed or seriously
injured has decreased in recent years (see figure 1.3 below).
The fact that premiums haven't decreased leads us to the conclusion
that claims frequency doesn't necessarily result in increased
premiums.
(Figure 1.4 - Source Department of Transport via Data monitor)
Conversely average claim costs have risen significantly during
the same time period suggesting that the cost of claims affect
insurance premiums more (see figure 1.4 below). According to the
ABI medical inflation is the main driver of this increase, especially
in the case of bodily injury claims. The average cost of a bodily
injury claim far exceeds all other claim types and results in
significantly higher outgoings on behalf of the insurance provider
(see figure 1.4)
(Source - ABI via Data Monitor)
Finally the increased number of high-value claims has arisen as
a result of the greater involvement of third-party management
costs such as credit hire organizations and claims management
companies.
6.2. Insurance fraud - More prevalent when premiums are high
or in times of financial hardship and economic downturn. As expected,
the number of fraudulent incidents increased during the recession
as cash-strapped individuals sought to make money from insurers.
The most high profile cases of fraud are "cash for crash"
scams. Another type of fraud is "fronting" and usually
this occurs when a parent declare themselves as the main driver
despite one of their children being the primary car user. The
Motor Insurers' Bureau (MIB) found that two thirds of drivers
in fact do not even understand what it means to "front".
Undetected fraud is estimated to increase the cost of an average
annual individual policy by around £44. (Source Insurance
Fraud Bureau)
6.3. Uninsured Driving - Like fraud uninsured driving
increases in times of financial hardship or economic decline.
Uninsured driving is typically prevalent in young drivers, with
drivers under 26 being 11 times more likely to have an IN10 Conviction
in the last five years than over 60's. (Source: Confused.com)
7. PUBLIC POLICY
IMPLICATIONS OF
THE RISE
IN THE
COST OF
MOTOR INSURANCE
AND STEPS
THE GOVERNMENT
MIGHT TAKE
IN RESPONSE
TO THEM
ARE AS
FOLLOWS:
7.1. More education and support for young drivers. Making
driving tests harder and more relevant to current driving and
revamping the pass plus scheme could decrease claims, thus decreasing
the costs associated with claims, allowing the price of policies
to fall.
7.1.1. With 15% of the drivers causing 31% of all accidents
and 40% of all claims cost, schemes to educate new drivers and
provide them with better experience can only help to bring this
down.
7.1.2. The pass plus scheme has started to become less of
a desired qualification with some insurers as they don't see the
benefit in lowered risk. Drivers are not getting the benefit of
reduced premiums with this qualification. Is it time to re-assess
this scheme and improve to make it an attractive option for drivers
and insurers alike.
7.2. GPRS technology for younger drivers would help keep accidents
down and allow insurance companies to give lower premiums to adopters.
Cover Box and green Road, to name two have developed technology
to track the driving styles and habits of drivers. They apply
these schemes with insurers to provide a lower risk . If the driver
is driving adversely then the premiums go up. There is a cost
to fitting the technology to vehicles, but by supporting these
schemes for younger drivers, we would be likely to see fewer accidents,
more responsible driving and as a result lower premiums for these
individuals.
7.3. Higher deterrents for uninsured drivers would also have
a positive impact on policy prices.
7.3.1. The deterrent for driving without insurance is at maximum
a fine of £1,000, more commonly those caught are penalised
for £200-£300 (in 2008 average fine dropped from GBP224
to GBP185).[30]
Where the cost of the penalty remains significantly cheaper than
the cost of the policy the incentive to drive legally is diminished.
7.4. Facilitate insurers working with with the
DVLA databases to cut down on Fraud. Having access to the DVLA
databases for convictions and licence types will remove the temptation
for fraud (because information will be provided from an official
source) and allow insurers to accurately represent the drivers
conviction history and the customers risk more accurately in the
prices they are offered.
8. In summary, Confused.com believes the
three biggest contributing factors to the rise in insurance fraud
which can be proactively managed are:
8.1 Instances of accidents and high claims amongst
young people. Young people aged 17-25 account for 31% of accidents
which represents 40% of total claim cost. Reducing the number
of accidents further and decreasing the average claim would have
a positive effect on insurance prices.
8.2. Put further challenges in place to combat
uninsured drivers, making the penalty greater than the cost of
insurance, encouraging young people to take insurance in the first
place and reducing the cost for honest motorists
8.3. Improve data sharing between insurers and
groups such as the DVLA to reduce instances of fraud and to create
an industry solution to the new model by which motor insurance
is purchased.
November 2010
30 Source http://www.prweb.com/releases/car/insurance/prweb1621854.htm Back
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