The cost of motor insurance - Transport Committee Contents


Written evidence from the Department for Transport (CMI 20)

NOTE ON PUBLIC POLICY IMPLICATIONS OF THE RISE IN THE COST OF MOTOR INSURANCE AND POTENTIAL GOVERNMENT RESPONSE

The rising cost of motor insurance is a particular problem for young people, including learner drivers, who are finding that increases are making insurance unaffordable. This is an issue of public policy, because many young people depend on a motor vehicle for access to education and employment; and learn to drive for these reasons.

Significant rises in the cost of insurance might tempt some drivers to drive uninsured, or to obtain cheaper insurance by making false statements about their driving record (such as penalty points accumulated) at the time of purchase, or younger drivers being declared as a named secondary driver on parents' insurance when in fact they are the main driver of a vehicle. The Government is aware of these dangers. From spring 2011, we intend to introduce continuous insurance enforcement, which involves making regular comparisons of DVLA's vehicles database with the Motor Insurance Database run by the insurance industry, to identify and take action against keepers of vehicles which are apparently uninsured. We are also working with the insurance industry with a view to allowing them access, subject to the driver's consent, to relevant details of a driver wishing to take out insurance, such as age and penalty points accumulation.

It is notable that despite significant reductions in the number of casualties, insurance costs have continued to rise. Some of these costs reflect fraudulent claims, as well as weak control of replacement cars, and the growth of the claims compensation industry. We are working with the insurers on ways of managing these costs.

We accept that higher premiums faced by younger drivers reflect the cost to insurers of providing cover. We understand that there are two main reasons for this. In the first place, insurers' figures suggest that as many as a fifth of newly-qualified drivers make a claim within six months of passing their test. Many of these relate only to bumps and scrapes, but the overall cost to an insurer of even modest damage is likely to be more a young driver will have paid in the annual premium. Of course, the cost of damage claims affects all insured drivers, although groups that are over-represented in claims are likely to cost insurers more. There is, however, a second area where insurers have to make special provision in relation to young people. A minority of accidents lead to catastrophic claims - in particular, where one or more claimant will require long-term - even life-long - medical care. The problem with young drivers is not simply that claims are more likely, but that such costs are liable to be much higher where the claimant is young. The additional public policy concern here is that only a limited number of big insurers can afford provision against such claims, which limits the market in which young people can buy insurance.

Insurers have argued that these public policy concerns support calls they have made for the Government to impose additional regulation on newly-qualified drivers. The Transport Committee has considered this issue in an earlier inquiry on novice drivers. It is argued that road safety might be improved if newly-qualified drivers were not allowed to drive in high-risk circumstances, and various specific restrictions are proposed - which are used in other countries, mainly where driving is permitted below the minimum age here. The Government is committed to avoiding additional regulation. It is concerned that the restrictions proposed would bear down even on those who want to be safe and responsible - who may need the use of a car for access to employment or education. There is also a risk of perverse consequences - for example, limiting the carriage of young passengers would prevent a sober driver providing transport for companions who have been consuming alcohol.

There are alternative approaches. The Department has been working on measures to improve driver training and testing, and is considering whether further measures should be developed. Training should focus not just on the test, but on the challenge of independent driving - including, for example, an understanding of the risks of particular driving conditions, and of distraction and impairment. We also intend to work with the insurance industry on whether new insurance products can be developed, with discounts where young drivers have chosen enhanced training pre- and/or post test; or are happy to accept in return restrictions such as not driving at night.

November 2010



 
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