HC 591 The cost of motor insurance

1. Background 

The obligation to have valid liability insurance covering the use of motor vehicles is one of the core principles of the European Community motor insurance legislation. It has been clearly stated by the European Insurance & Occupational Pensions Committee (EIOPC) that Member States should do everything in their power to combat uninsured driving.

Unfortunately, historically the UK has had a very poor record of addressing this problem with levels of uninsured driving exceeding 5% of the vehicles on UK roads or 1 in 20 cars. This compares poorly with the best in Europe such as, for example, Germany, Sweden, Denmark and Austria where levels are less than 1%.

2. The cost of uninsured driving 

The Motor Insurers’ Bureau (MIB) is a company limited by guarantee and was established to ensure that the victims of uninsured driving and ‘hit and run’ drivers do not go uncompensated following an accident. It operates under two agreements with the Department for Transport and currently deals with over 30,000 claims from innocent victims each year at a cost of some £400m. This is a cost which is ultimately borne by the honest and responsible consumer. In view of the obligations arising under the Road Traffic Act insurers currently also have to deal with a significant number of claims which would otherwise be classed as uninsured. Therefore, the true financial cost of uninsured motoring in the UK almost certainly exceeds £500m.

This financial burden has, until very recently been increasing relentlessly. The MIB levy on insurers has increased from £39m in 1991 to £417m in 2008.

The Motor Insurance Database (MID) is the central insurance database for UK vehicles established by the insurance industry and operated by the MIB. Since its introduction together with the police facility to interrogate the MID and the police power to seize uninsured vehicles, there has been a welcome reversal of the rising trend in the costs of uninsured driving.

On average, one person is injured every 20 minutes and 3 people are killed each week by uninsured or untraced drivers and whilst this remains unacceptably high there are encouraging signs that matters are improving. With the introduction of the MID, coupled with the concerted effort and collaboration with all UK Police forces, the level of this socially unacceptable crime has fallen by something in the order of 20% since 2006.

This positive enforcement approach has removed over 600,000 uninsured vehicles from our roads since the introduction of the necessary power to seize an uninsured vehicle in August 2005. This has certainly helped drive the improvements to date. However, as pointed out by Professor Greenaway in his report entitled Uninsured Driving in the United Kingdom published in July 2004, on the road enforcement activities alone cannot deliver the further significant reduction in the level non-compliance that is required.

The vast majority of drivers in the UK comply with the law but recent surveys indicate that despite the reducing levels of uninsured driving not everyone accepts the responsibility that owning a vehicle carries. A surprisingly large number, particularly of young drivers indicate that they are not aware of their legal obligations with some 10% of 18-34 year olds not knowing it is a legal requirement to insure a car.

The MIB commissioned research last year to help understand people’s attitudes to motor insurance and how these might be impacted by the harsh realities of the economic recession. Following on from the research the MIB launched the Stay Insured campaign underlying why, when it comes to driving and motor insurance, staying insured is not only legally but socially and economically the right decision for everyone in the UK. A full copy of the Stay Insured Report is attached to this submission [1]

3. The next step – Continuous Insurance Enforcement 

In 2004, as a direct response to the increasing problem of uninsured driving, the Government commissioned a review of all areas relating to motor insurance. To address one of the key recommendations of the resulting ‘Greenaway Report into Uninsured Driving’, the Government commissioned DVLA to introduce a record-based compliance and enforcement regime. The powers to do this were inserted at Section 22 of the Road Safety Act 2006. The legislation makes it an offence to be the registered keeper of a vehicle on the road without a valid policy of insurance being in force.

The Department for Transport, DVLA, MIB, ABI and BIBA are currently working on the programme to introduce Continuous Insurance Enforcement (CIE) from March 2011 which is a preventative approach and will focus not on identifying individuals using an uninsured vehicle on the road but uses technology to effectively and efficiently supervise directly from the record a supplementary offence; that of being the registered keeper of a vehicle which is not insured. Effectively, this will involve comparing the DVLA database and the MID to check whether insurance is in place for each vehicle. This approach, being record based, as opposed to actual on road capture means the ability to significantly scale up the requirements to enforce Insurance obligations will reach unprecedented levels, and is expected to significantly reduce the levels of evasion when considered in conjunction with existing police on-road activities. Education and encouragement are watch words of the intended scheme but will require all stakeholders to play their full role.

This is a major combined public and private sector initiative that will not involve large sums of public funding. In fact the insurance industry has already invested in excess of £50m in developing the MID to enable its use for this purpose. All motor insurers in the UK and BIBA are supporting the introduction of CIE. There are significant benefits to consumers, including a reduction in the subsidy required to fund the consequences of uninsured driving, improved road safety and the consequent impact on public and private funds, more effective use of limited police resources and improved public perception of the government’s role in dealing with this problem.

This is an initiative that will deliver real benefits to consumers, lessen the feeling of insurance being a "grudge purchase" for many and ameliorate the impact of other continuing upward pressures on the cost of motor insurance.

November 2010

[1] Not published here.