On the same day this week that Chancellor Philip Hammond said the government would “progress urgently” to consult about the personal injury discount rate, the Petitions Committee, working jointly with the Transport Committee, heard evidence about the cost of car insurance for young drivers. The topic will be debated in Parliament after a petition calling for a £1,200 cap on the cost of car insurance for young drivers secured more than 180,000 signatures. The Parliamentary debate is scheduled for 20 March and it may be mere coincidence that this is the same date on which the statutory instrument bringing in the new negative discount rate is scheduled to take effect.
Insurers warned that car insurance premiums could “soar” generally due to the Government’s announcement of the new personal injury discount rate of minus 0.75%. Mr Hammond then met fifteen insurance CEOs on 28 February to discuss the rate and in a joint statement with the industry after the meeting said that the system must be “fair” to claimants as well as other drivers. He added that “The government will progress urgently with a consultation on the framework for setting future rates, and bring forward any necessary legislation at an early stage.”
The Select Committee session on young drivers held the same day heard from a wide range of witnesses: Elizabeth Box, Head of Research, RAC Foundation, Nigel Dotchin, Chairman, Wheels 2 Work Association, Crispin Moger, CEO of Marmalade, Graeme Trudgill, Executive Director, BIBA, James Dalton, Director of General Insurance Policy, ABI and Simon Warsop, Global Chief Underwriting Officer (Personal Lines), Aviva.
RAC and Wheels 2 Work advised the Committee that the high cost of insurance for young drivers impacted their social wellbeing and employment prospects. It was claimed that one in five job opportunities aimed at young people required access to a car. In addition, social isolation in rural areas was a problem for the young because of the high cost of motoring (of which insurance premium is an important element) and the lack of an integrated public transport system.
The insurance industry advised the Committee that young drivers posed a significantly higher risk when compared to older drivers and consequently paid higher premiums. Greater driving experience was key to risk reduction. One option might, for example, be to require young learner drivers to clock up 2,000 miles before their driving test. ABI said that a graduated driving licence which allows new drivers to build up their driving skills and experience in well-defined and structured stages could help reduce the risk and lower premiums. Classroom-based behavioural training including speed awareness courses, similar to that adopted in Australia where accidents involving young drivers in their first year of driving had been reduced by 44%, could help enormously.
Those giving evidence agreed that telematics was a key device in reducing risk. The technology could record the number of miles covered, it allowed for parental oversight and night-time restrictions and recorded driving behaviour such as accelerating, braking and cornering. It was claimed that 1 in 5 young drivers have an accident in the first six months of driving compared to just 1 in 16 in vehicles fitted with telematics.
The Committee was surprised to hear that 53% per cent of people surveyed thought that ‘fronting’ an insurance proposal form was acceptable, despite it being – as one MP noted – “illegal because it is a type of insurance fraud.” [‘Fronting’ for example being when a parent is named as the main driver of the vehicle, used mainly by the young driver in order to secure a lower premium.]
Simon Warsop from Aviva explained that the insurance industry collects premiums from many to pay claims from the few and that premiums are based on risk. The suggestion of a capped motor insurance premium for young drivers was firmly dismissed. Some insurers would refuse to insure young drivers if a cap were to apply. Furthermore, it was suggested that such a cap could allow young drivers to insure high-powered vehicles which would not encourage safer driving.
James Dalton from the ABI said that young drivers take driving lessons to pass the driving test rather than to learn properly how to drive a car safely. The industry representatives would ban one-week driving courses aimed at getting a learner driver through the driving test with hardly any driving experience or road safety awareness. It was said that the current driving test was not fit for purpose and should be reviewed.
The debate inevitably turned to the change in the discount rate announced by the Lord Chancellor. This was described by ABI as “absolute madness”. PWC had estimated that the change could result in young drivers each paying an additional £1,000 annually for motor insurance. Huw Merriman MP described this as scaremongering. James Dalton replied that the underlying assumption that all claimants invested their compensation in Government Bonds yielding negative levels of return was most unlikely. Simon Warsop reiterated that those posing the greatest risk would inevitably pay high premiums, but that the age/risk ratio reduces very quickly.
With the session over running by about 20 minutes, it fell to BIBA to have the last word with its eight point plan:
(a) reducing IPT to 0% for young drivers with telematics and freezing IPT
(b) improving the driving test
(c) greater promotion of advanced driver assistance systems
(d) promoting insurance issues via the single financial guidance body (the replacement for ‘Money Advice Service’ overseen by FCA)
(e) improving post-test advanced driving courses
(f) implementing the whiplash provisions in the Prisons and Courts Bill
(g) reviewing the discount rate (noting the new consultation to commence by Easter).
(h) implementing the Insurance Fraud Taskforce’s 26 recommendations
The immediate next stages in all of this look to be the Chancellor’s Budget next week, on 8 March, and then on 20 March the young drivers petition will be debated and the new discount rate will take effect. Further updates will feature on this blog as usual.
Written by Jef Mitchell, consultant at BLM