Cost of motor insurance: follow up - Transport Committee Contents

1  Introduction

1.  In March we published a report on the cost of motor insurance which looked at the reasons for the very significant increases in quoted premiums in recent years.[1] The AA calculated that the average of the lowest three quotes from 90 providers (the 'shoparound' average) for comprehensive cover increased by 39.3% in the year to October 2010. Our report triggered a positive public reaction: we received numerous letters from members of the public about their premiums and how their claims were handled. During the last eight months there have been a number of further developments which led us to hold a further oral evidence session, on 11 October, and to publish this report. We are grateful to our witnesses on 11 October and to the individuals and organisations who volunteered further written evidence.

2.  The main developments relating to the cost of motor insurance since our last report can be summarised as follows:

  • Quoted premiums have continued to rise, but more slowly than before. The AA's shoparound average fell by 0.3% between the second and third quarters of 2011, although the annual rate of increase remains well above inflation at 16.4%. Quoted premiums for younger drivers continued to rise.[2]
  • Rt Hon Jack Straw MP introduced a bill to Parliament under the ten minute rule procedure to ban the payment of referral fees, establish new standards relating to the evidence required and damages payable for whiplash, to reform the Pre-Action Protocol for Personal Injury Claims in Road Traffic Accidents, and to set requirements in respect of risk pricing for personal injury claims.[3]
  • The Government brought forward legislation to ban referral fees in personal injury cases, as part of the Legal Aid, Sentencing and Punishment of Offenders Bill which is now in the House of Lords.[4] The Justice Committee welcomed the Government's commitment to ban referral fees but said it did not believe the ban should be limited to personal injury cases.[5]
  • The OFT issued a call for evidence to establish the background to recent reports of rising UK private motor insurance premiums and consider whether further work may be necessary to improve the way the market works.[6]

In addition, we received the Government reply to our report, which we published in September.[7]

3.  As part of our continuing work in this area we took up an offer from Young Marmalade, a firm specialising in insurance for young drivers, to conduct a survey of their customers' attitudes to young drivers. The full results and a summary of the comments received can be found in the annex to this report. The headline results were:

  • 96% of young drivers think they are being priced off the road because of high motor insurance premiums.
  • 21% have considered driving without insurance, because of the high cost of premiums.
  • 30% have considered altering the information they provided to insurance firms in order to secure a lower quote. This included 15% who considered changing the main driver of the car—a potentially illegal practice known as 'fronting'.
  • 57% were unaware that, after an accident, insurance firms often pass personal details to a solicitor, car hire firm or garage in return for a referral fee.

4.  In this report we comment on events relating to motor insurance since March and review how policy is developing in the areas we identified as contributing to higher premiums.

1   The cost of motor insurance, Fourth Report, Session 2010-12, HC 591 (hereafter CMI first report). Back

2   Ev 19.  Back

3   HC Deb, 13 Sep 11 cc 898-98. Back

4   See HC Deb, 1 Nov 11, cc 822-50. Back

5   Referral fees and the theft of personal data: evidence from the Information Commissioner, Ninth Report, Session 2010-12, HC 1473, paragraphs 10-14. Back

6   OFT press release, 8 September 2011. Back

7   Fifth Special Report, 2010-12, HC 1466 (hereafter Government reply). Back

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Prepared 12 January 2012