Car Insurance

Alan Brown Excerpts

Monday 5th March 2018 Westminster Hall

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Davies.

I congratulate the hon. Member for Clwyd South (Susan Elan Jones) on introducing the debate on behalf of the Petitions Committee in her characteristically balanced and thoughtful style. She presented it very well. I particularly liked the way in which she highlighted how the petition’s suggestion of insuring cars rather than drivers might help to limit the number of uninsured drivers on the road. In my experience, a lot of the uninsured drivers who cause problems tend to be uninsured for reasons other than cost—they may have lost their licences for various offences, or they may be serial offenders—so insuring cars might not completely eradicate the problem, but it is certainly worth considering.

I also liked the way in which the hon. Lady highlighted the key issues that should be considered before changing insurance legislation, including cost, personal injury, the possibility of helping the innocent to achieve justice, and overall safety—an issue that the hon. Member for Darlington (Jenny Chapman) picked up on when she spoke about graduated licences.

The hon. Member for Clwyd South also highlighted the possible dysfunction in the market. There is no doubt that many people are cynical about how the insurance market operates, so it is always good to shine a light on it and have transparency. She mentioned insurance premium tax, which was increased a couple of years ago in yet another Budget whammy. The cost of insurance for young drivers is a major issue. The hon. Lady asked the Minister to consider freezing insurance premium tax; I would like the Government to go further and consider introducing age restrictions on it. The cost of insurance for young people is so prohibitive that the extra 10% or 12% on top of their already big premiums is a real hit.

The hon. Member for Darlington mentioned insurance premiums and then raised a matter that was perhaps a bit off topic but that is clearly very important, because she is supporting her constituents in a case that has been really harrowing for them. I certainly understand the arguments for a graduated driving licence scheme and I look forward to the Minister’s response. The hon. Lady’s teenage sons might not appreciate such a scheme, and nor might many other young people, but in the light of the wider consequences for safety, we have to consider the matter seriously. I commend her for raising it.

It is clear that the issue is not as simplistic as car-only versus driver-only insurance, as the petition suggests. The United States system imposes liability insurance requirements on drivers, and many US car insurance policies include restrictions, although they may be as simple as a requirement for a manual driving licence—many cars in the States are automatic and many people have automatic-only licences. The Association of British Insurers lists other considerations relevant to a change in the UK insurance market system, such as experience with particular types of vehicle or age profile. Many car-only insurance policies include restrictions on the age and experience of drivers. It is not quite as simple as someone insuring a car and then all their friends and family being fully insured to drive it.

The petition is loosely based on the situation in Portugal, but as the hon. Member for Clwyd South correctly highlighted, the market in Portugal is not straightforward either. I know from experience that in the United Kingdom it is possible, even under the current market set-up, to insure a car such that drivers other than the named driver are fully insured to drive it. My dad’s car has been insured for many years to cover any valid driver who has his permission to drive it and who holds the necessary licence, although I believe there are some restrictions relating to penalty points and minimum age, so it is clearly possible to get car insurance that includes the flexibility for friends and family to drive.

I, too, have a teenage son, so I can certainly see the arguments and attractions of a car-only insurance premium, which might make driving less cost-prohibitive for young drivers. Certainly my 18-year-old son, Dylan, advocates such a system, because he thinks it will magically reduce his premiums. Clearly, however, it could reduce premiums for him only if we all pay a much higher share ourselves, so again there would be winners and losers, although it might make the market slightly easier for young drivers to enter into.

As the hon. Member for Clwyd South highlighted, this petition has a decent number of signatures—56,000. Last week, when I first got notification of the debate, I think it had 45,000 signatures, so there has been a considerable increase in the past week or so, which I imagine must be due to the interest generated by this debate. At the least, this debate is highlighting an issue for more people to think about.

Only eight of my constituents have signed the petition, so it is fair to say that it has not really caught the imagination of my constituents, or of others; perhaps that is why the Chamber is not quite as busy as it might be for some other petition-led debates. Of course, that does not invalidate the legitimacy of bringing forward the debate and allowing Members of Parliament to consider the issue, and to challenge the Government to consider the possible change that has been highlighted in the debate.

The scenario given in the petition is that a group of friends goes out drinking, and the driver who is responsible for the vehicle gets drunk and cannot drive it. If the car was insured through a car insurance policy, another driver—one of his friends—could drive it home. For me, it is not necessarily a credible proposition to introduce primary legislation for such a scenario. I suggest that education and better planning by people going on a night out is the best way to deal with that scenario. Otherwise, it might end up with somebody driving the car who does not have experience of that car, and if his friends are intoxicated he might not get responsible instructions on how to operate the car. As I see it, that would impose risks rather than being a benefit.

Ironically, if the future of the driving world is as predicted by the Government and many experts, we will have autonomous vehicles taking over rather than driver-led vehicles. In the bright, new, shiny world of the future, we will have driverless cars and therefore, in that scenario I just mentioned—friends going on a night out—there would not be a designated driver, because there would be an autonomous vehicle that could pick people up and safely take them home.

I sat on the Bill Committee for the Automated and Electric Vehicles Bill, in which the Government are legislating for car-only insurance for autonomous vehicles, because the risk model and functionality of those cars, as opposed to driver-led cars, mean that the insurance industry is saying that they need to be insured on a car basis, rather than on a driver basis. That is going through the legislative process at the moment and it may be that driver-led insurance gets phased out in the future.

The reality is that insurance is a risk-based market, so for the insurance market to function properly the insurance companies need to be able to assess the risk and quantify that risk to be able to set premiums. If they get it wrong, there are two scenarios. If they get it wrong and charge too much, they make excessive profits and those paying for insurance pay even higher premiums. If they get the risk model wrong, frankly they will go bankrupt, and if more companies went bankrupt there would be a shrinking market, which could lead to the worst cartel or monopoly situation. That would invariably drive up insurance premiums in the long run.

I will conclude by saying that we should never say never in terms of the changes that might happen, and I will be pleased to hear the Government’s response to the debate. At the moment, however, I am tempted to agree with the initial Government response to the petition—namely, that the change might not be the silver bullet we hope for and might not give the greater flexibility or the reduced premiums that we are looking for. I think that, on balance, the initial Government response is probably correct, but I would certainly like to hear what the Minister has to say about some of the other matters that have been raised today.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Transport (Jesse Norman)]

It is a delight to serve under your chairmanship, Mr Davies. I would say I was speechless at the joy, except that I have to make a speech. I thank the hon. Member for Clwyd South (Susan Elan Jones) for opening the debate as she did on the important subject of insuring cars rather than the individuals who drive them. I also thank all hon. Members for their contributions, and I welcome the hon. Member for Reading East (Matt Rodda) to his position on the shadow Front Bench. It will be a delight to address some of his points.

I hope I can assure hon. Members that the Government take the cost of motor insurance seriously and are committed to ensuring that it is reasonable for all motorists. To do that, we have sought to identify the root causes of high insurance premiums and to address them directly, but we have no plans to change the current motor insurance system, as stated in our response to the petition, and there appears to be consensus across all the parties whose Members contributed to the debate that that is the correct position.

I will first outline the system and some of the issues and then come on to all the important questions raised by colleagues from across the House. The UK was one of the first countries in the world to recognise the benefit of compulsory motor insurance, back in 1930. Our long-standing approach has been that it is an individual’s use of a vehicle that has to be insured. The current system of insuring individual drivers, rather than vehicles, does not, as has been noted, prevent named drivers from being added to an insurance policy for shorter or longer periods, which can be a cost-effective way for friends or relatives who share a car to be included on a single policy. For a typical family of four sharing a car, the saving with a named-driver policy rather than each family member having their own policy has been estimated to be more than £1,000. There are also new insurance products coming on to the market that facilitate short-term cover, including insurance by the hour and car-sharing arrangements, without the need to change insurance law. Such products make it easy to arrange cover for someone else using your car. One new car insurance app quotes an average of £10.90 for an hour’s coverage, which can be set up at very short notice, and I am sure we can expect further developments of such pay-as-you-drive solutions in the coming years.

It is important to note, as colleagues have, that it is not at all clear that changing the system would reduce the cost of insurance. In fact, there is every reason to think it could raise it. The complexity involved in changing the system would have significant cost implications, yet would not necessarily produce tangible benefits for the consumer. Some countries opt for a car-based rather than a driver-based system because they have no-fault legal regimes, under which each insurer compensates their own policyholder. So it is a question not just of how people purchase insurance but of the wider civil law principle of liability, which is different in the UK from those other countries. Changing our motor insurance system would almost certainly, therefore, involve complex legal changes and require detailed consultation. A change in the underlying legislation would mean that all insurers would need to redesign the systems they used to offer quotes, which, as the hon. Member for Reading East hinted, would be a complex and lengthy exercise and could have significant cost implications for both the industry and, in due course, consumers. Given the alternative solutions available, such as adding a named driver or adding “drive other car” options to motor insurance policies, such significant reforms would be disproportionate.

The price of insurance currently depends on a range of factors, including many that are driver-specific: driving history, including previous claims and unspent drink-driving convictions; the use made of the vehicle, for example, whether for commuting or business; and years of driving experience. If insurers were required to cover the vehicle and were not able to take such factors into account in their pricing, the cost of insurance would likely rise for those with a good driving record and a history of safe driving and they would end up bearing, on a net basis, the additional costs of drivers who were not as careful or safe. The evidence for that is that insurers already tend to charge much higher premiums for any-driver insurance policies, under which less good drivers can join a named driver. Named-driver policies allow friends or relatives who share a car to be included on a single policy and provide the insurance provider with the necessary information to assess the potential risk of each individual.

Turning, as one or two colleagues have already done, to the scenario used in the petition, I wish to note that it is based on a drink-driving situation. Three friends need to get home from a night out, two of whom, including the driver, are under the influence of alcohol and are unable to drive. The petition suggests that a system that insured the vehicle would enable the third friend to drive the group home. However, as has been mentioned, the risk could be significantly greater than is suggested. As has been noted, the owner’s friend may never have driven the vehicle and may have much less overall driving experience or a significantly worse claims history. In an era where vehicle technology is changing rapidly, the variety between newer and older cars is only getting greater, so the driver’s individual experience of a particular make and model of car will have increased significance.

We have to think about the cost of covering vehicles, not people, as well as the incentive that creates. If that group knows that one of its members—they may be the least experienced driver—will be sober, that could create an incentive that removes the restraint on people’s drinking. There may therefore be collateral unexpected consequences, even within the scenario that was set out. That by no means means that the Government are not determined to seek to reduce the cost of insurance, and it is important to make that clear. We have no plans to change the current system, but that does not mean we are not tackling other key issues known to drive up the cost of premiums, several of which have been discussed today.

One issue that has not been discussed is that of the measures we are taking to tackle the high rate of fraudulent, minor and exaggerated whiplash claims. The scale of the problem is highlighted by the fact that 85% of personal injury claims made in 2016-17 relating to road traffic accidents were labelled as whiplash or soft tissue injuries to the neck and back. I am afraid these data are four or five years old, but that figure compares with 30% in France and Denmark, 31% in Spain, 35% in the Netherlands and 68% in Italy, which is a bit more like us. A large number of claims management companies actively encourage claims after even minor crashes, thereby potentially exacerbating the problem. The magnitude of costs that insurers inherit from whiplash claims are often passed on to consumers through higher insurance premiums, raising the cost overall.

In February 2017, the Government announced a robust package of reforms to crack down on minor, fraudulent and exaggerated whiplash claims. The measures will be introduced in a civil liability Bill in due course. Subject to parliamentary time and consideration, the Government aim to implement the whiplash measures as a package in April 2019. It is estimated that the reforms will bring down the cost of motor insurance by around £35 a policy. Leading insurers, such as Aviva, have publicly committed to passing on savings through lower premiums. Motor insurance operates under something of a cloud, as we recognise, and has often been criticised on competition grounds, as colleagues have noted. In many ways, however, it is an intensely competitive industry, and insurers will have be under pressure to pass on savings or risk being priced out of the market. We as the Government will monitor the industry’s reaction to the reforms and will consider further action if required.

I want to pick up on some of the points that Members have raised, which include some important issues that are collateral to the petition, but are important for us to touch on. The hon. Member for Clwyd South mentioned that she had three key tests for legislation in this area. The first was the effect on costs, the second was the effect on the innocent party and the third was whether it would help or hinder road safety. I hope she will recognise that one of the unintended consequences might be to push up the cost of personal injury claims. The UK is famed for its relatively high level of personal injury claims, which is one reason why it yields whiplash claims. Those claims are one of the things funded by insurance premiums. The downside is higher costs, and we have identified that problem, but the upside is that personal injury claims tend to get paid out at a higher level in this country. We are keen to ensure that the link between driver insurance and driver behaviour is maintained precisely to maintain personal accountability.

The hon. Lady, like the hon. Members for Darlington (Jenny Chapman), for Kilmarnock and Loudoun (Alan Brown) and for Reading East, was absolutely right to note the high cost of young people’s insurance claims and the higher risk that young people face in their motoring. In answer to the question raised by the hon. Member for Reading East, I cannot comment on what the coalition Government did or did not promise about a Green Paper, but I can tell him that these issues are of enormous interest and importance to the Government. We have commissioned a lot of work under our Driver 2020 programme, which is specifically designed to explore different forms of intervention that can bear on young people and improve their driving and therefore their insurability. That includes work on hazard perception, simulated training, education, parental engagement, data recorders, telematics and the rest. That is important.

To respond to the hon. Member for Darlington, we absolutely have not ruled out some form of graduated driver licence. We do not think it is the right policy at the moment, but we are looking at it. As she acknowledged, there are different forms of GDL, and it is important to be specific about the elements that might be brought in. It is not policy, but as she has said, and as the Prime Minister has said, we are considering that for precisely this reason. It falls into a wider desire across Government and certainly on my part to reduce the risk to young drivers, particularly in rural areas.

In my county of Herefordshire, I went to an extraordinary demonstration organised by the local fire service called Dying 2 Drive. It is run in connection with the ELY Memorial Trust, which is a wonderful local charity dedicated to helping prevent road accidents for young people. It is the most petrifying experience. Young people in sixth forms are exposed to a road traffic accident with fatalities right there. The situation in front of them is then solved through an intervention by the fire service and the police. It is a very moving experience. It is very hard to see it and drive without great care and attention thereafter, and the evidence is that it is very effective. I would like to see it rolled out by all kinds of fire services. It underlines the wide range of interventions that can be used to try to help this problem of young people at risk on our roads.

I will pick up a couple of other points that have been made. Adverse consequences are a theme that everyone has rightly touched on. We all recognise that the cost of premiums is higher than we would like, particularly for certain groups in society. We are determined to adopt a series of reforms—I have talked about whiplash and the work being done on young people—to try to reduce the high premiums and their impact on particular groups, but we have to be aware of the law of unintended consequences and the danger that such reforms may inadvertently drive up costs and premiums. Costs may be reallocated to people in a way that undermines the incentives to drive well and drive safely. It would be a disaster if we had those counterintuitive and counteractive results.

I am grateful to all Members who have contributed and to the hon. Member for Clwyd South for introducing the debate.

[Alan Brown]

I thank the Minister for giving way just as he was finishing. In terms of the costs for young drivers, I mentioned the fact that the extra 12% insurance premium tax is a further hurdle for those drivers to overcome. Could the Government look at reforming that?

[Jesse Norman]

It is hard to respond to that question, because it is about a tax and is therefore handled by the Treasury, rather than my Department. Also, it is not a tax that falls specifically on young people, but on the industry as a whole. As with any tax, one should consider not only the tax but the things it is intended to pay for and might be paying for, whether that is reducing debt or funding public services. The point I would make to the hon. Gentleman is that over the past few years the Department has pioneered a continuous insurance enforcement system that has significantly reduced the number of uninsured drivers by some 40%. Again, we take the point about the concern, but we specifically want to address the cause of it, which is the number of uninsured drivers. That is the core point of the remark.

To wind up, I am grateful to colleagues across the House and the hon. Member for Clwyd South for introducing this debate. I am grateful to the Petitions Committee for putting it on our docket. We all recognise that the cost of car insurance is an important issue for all motorists. That is why the Government are committed to the things we have discussed tonight: tackling fraudulent whiplash claims, working with the motor insurance market, keeping premiums as low as they can be and addressing the risks and concerns that relate to young people and those in rural areas. I hope on that basis that the House will be satisfied.