Car Insurance: Young People

Anne Main Excerpts

Monday 20th March 2017 Westminster Hall

[Huw Merriman (Bexhill and Battle) (Con)]

It is a pleasure to speak in this debate. I echo the words of the hon. Member for Liverpool, Riverside (Mrs Ellman), who chairs the Transport Committee, of which I am a member, and congratulate the lead petitioner and all the people who signed the petition.

I represent a rural constituency of 200 square miles, where the car is an essential way of life, particularly for the young, for whom getting out and engaging has never been more important, given the advent of social media and their ability to communicate while on their own in their bedrooms. It is vital that we do everything we can to let them get out and about and interact with the world around them. That is more important now than it was when I was young. We talk in this place, rightly, about social mobility. In rural environments where people’s ability to access public transport, let alone pay for it, is somewhat restricted by the loss of bus services and other difficulties, it is hugely important for our young people to be able to go out to work, earn money and get a foot on the ladder, because without that ability, they may be held back and not climb the ladder.

I congratulate my hon. Friend the Member for St Austell and Newquay (Steve Double) on leading off this debate. We ended up in a discussion about whether tests have become easier. As we get older, we tend to slip into the mode of saying, “It was much harder in my day.” When I learned to drive and took my test, I did not have to reverse into a space—I found that to be a drawback when I moved to London—and I was not required to sit a written exam, as our young people are, so I might argue that tests have actually got harder. I remember being asked by my examiner what green meant at a traffic light. If the test has got harder than that, things are getting better.

I shall focus on the need for the insurance market and perhaps the Government, through incentives, to ensure that premiums are based on specific risk rather than a specific class, which is how young people are currently grouped.

[Mrs Anne Main (St Albans) (Con)]

My hon. Friend is making an excellent speech—I hope that I can contribute to this debate—but premiums actually are not based solely on risk. It used to be the case, a while ago, that young men paid higher premiums than young women. Of course, we were told that that was discriminatory, but it actually reflected risk—that is what the statistics said. Sadly, a lot of young women’s premiums had to rise to ensure that everything was fair and equal. I do not think that premiums are always based on risk—other things sometimes come into play.

[Huw Merriman]

My hon. Friend is absolutely right—I wholeheartedly agree. The Transport Committee and the Petitions Committee met jointly to hear evidence. We heard from the head of research at the RAC, who said that

“insurance costs are based on four main things: the cost of the vehicle; the likelihood of theft; the cost of available claims generally, if you were to make a claim; and the risk of the individual.”

It is absolutely clear that, on average, 17-year-old boys present twice the risk of 17-year-old girls, yet no price differential at all is offered. As my hon. Friend mentioned, there was such a differential, but prices had to be equalised as a result of the gender directive. Of course, in life, prices tend to go up rather than down. To a certain extent, she makes a point that I wanted to make—we should look at individuals’ performance risk and price insurance comparatively. In the United States of America, where the insurance market is much more tightly regulated, there is a requirement to look at specific risk rather than a class. Will the Minister consider whether the time is right to look at this issue from a regulatory perspective?

A 17-year-old new driver is 40% more likely to have an accident than an 18-year-old, yet I dare say that premiums do not fall by 40% in that year, because there is a tendency to look just at age. I received information from one of the telematics companies that seems to suggest that, by the time people reach 29, men and women present the same risk, and the curve drops dramatically.

At the moment, pricing is measured crudely for young people. Insurers tend to look at young people as students who live at home, drive small cars and have no driving experience, and therefore make no allowance for their performance. That is why telematics is such an exciting concept. The advent of telematics means that, rather than putting in place a cap that does not bear any relation to risk, insurers can reward good drivers and penalise people who do not drive so safely. With more telematics in place, 1,000 accidents involving death or serious injuries would be averted, so I dare to suggest that the cost to the Government would reduce. Telematics have developed to such an extent that the software can talk to emergency services to warn them of an event. We all know that early response to an emergency can save lives and, if we are crude about it, money, including for the state.

I would be interested to hear from the Minister about what we can all do and what the Government can do to incentivise the development of telematics. Given the cost savings that I mentioned, is there a case for insurance premium tax to be reduced for drivers who use telematics? VAT is charged on the box that is required to use telematics, which reduces the cost benefits, so, again, could some exemption be made as far as that is concerned?

The insurers’ discount rate was changed from 2.5% to minus 0.7%. Although that happened after the petition was started, the petitioners would maintain that their insurance premiums were high enough as they were. Unfortunately for the Transport Committee, that change was a live issue for insurers when we heard evidence. I am pleased that the Government have decided to look again at that rate, but we made the point to representatives of the insurers and the Association of British Insurers that their attempt to state that the change would cause young people’s insurance premiums to double was rather crude given that they did not seem to have research to bear that out. Actually, I do not believe they have provided the research that they promised to the Committee. We should perhaps always go hard on insurers and work hard to ensure that the evidence for the claims that they put out—they always say they are based on evidence, yet we do not see that evidence—is in the public domain, so that pricing for young people is demonstrably linked to the risk that they pose as individuals.

--- Later in debate ---

[Mrs Anne Main (St Albans) (Con)]

It is a pleasure to serve under your chairmanship, Sir Roger, in this important debate. While I disagree with capping fees, it is immensely important that we look at how the insurance industry treats our young drivers, because as I said when I intervened on my hon. Friend the Member for Bexhill and Battle (Huw Merriman), it is not treating them fairly. A lot of things have come into play since the gender directive. We all remember the adverts with pink ladies and all the rest of it, where young ladies and women could get car insurance that reflected the risks they were likely to encounter, and surely that is what insurance should be about.

As the hon. Member for Berwickshire, Roxburgh and Selkirk (Calum Kerr) said, we have all been young drivers. We were all pretty young and stupid then, and we learnt to drive as we went along. I am certain that every single one of us had a few near-misses or skirmishes with gate posts—there were none of the reversing sensors that we may have now. As the hon. Member for Liverpool, Riverside (Mrs Ellman) said, this has been going on for a very long time. There is nothing new in young people being more likely to make mistakes and slip-ups.

May I say that I have the best and most beautiful constituency? But I think I also have the worst roads. Previously, roads certainly did not have the craters—they are not potholes—we have in Hertfordshire and many other parts of the country. Road maintenance must be part of this. Road markings are often poor or obliterated, lighting is often poor and vegetation is often not cut back. That is all part of the picture for young and inexperienced drivers. If a road hazard sign has been defaced or is not visible because of vegetation, that is no help to a young, inexperienced driver.

Insurance companies are getting away with murder. We have not mentioned the fact that there are criminals who ram the back of cars—and who better to target than a young person in a scruffy old car? There are people who cry wolf about injuries that they certainly did not experience. All that has been factored in and spread across premiums. All of us have been in the position where our driving was a little rockier than it might have been. Perhaps now we should accept that insurance should spread across the whole age group, and that is where I find sympathy with the direction of the petition.

I am worried that this is a social mobility issue as much as anything else. In constituencies such as mine, where the average house price is more than £550,000 and where £1,200 does not rent an awful lot of property, young people who want to leave home or get jobs are priced further out. The golden rule is: the nearer the train station—which has wonderful links to London—the more expensive the rental. As a result, if young people—this is up to age 25—leave home, perhaps when they are in relationships, they are forced further and further away. The majority of my economically active constituents will go to London; there is a huge amount of churn in my constituency. People who are less economically advantaged commute in from areas where rents are less expensive, to do some of the key jobs of such constituencies, on a lower pay grade. So there is the perverse situation where people with less in their pocket, who live in areas where car theft is potentially more likely, are penalised for coming to do care work or other essential jobs in my constituency, because they have to drive in from further away. The whole picture needs to be taken into account by the insurance industry.

It seems unfair that, because of the high rents in areas such as mine, young drivers who have to rent in a less salubrious place than they might like—I am sure we all want to live in a nice area—should then have that weighted in their car insurance, because of the actions of those who come into that area and decide to deface, take or wreck their car, or use it for a criminal purpose. I do not believe that the insurance companies play a fair game. That is why the drift of the petition is extremely important.

[John Howell]

My hon. Friend is making an excellent point, but is she worried, as I am, that where people live is not the only factor in the situation? The additional premiums force young people to buy older cars, and if they do that, they are generally buying cars that are less safe.

[Mrs Main]

My hon. Friend makes a pertinent point, but for many young people the price of the car is the least of their worries. A fairly reasonable little runaround can be had for less than £1,000, which is about 50% of the cost of insuring the thing. They buy older cars because they have to, but unfortunately those may not have all the gizmos that make them safer or easier to drive, such as the reverse parking sensors that I mentioned. Those are beyond the wildest dreams of many young people, without—this is the thrust of my comments—the bank of mum and dad. I am a bank of mum and dad, as I am sure are many of the right hon. and hon. Members taking part in the debate.

My son is 21—and probably will not thank me for mentioning him in the debate. We bought him his car and paid the insurance premiums. We helped him with petrol when he was 18 and studying for his A-levels, because I did not want him to worry about whether he could pay for his car, and I wanted him to get to places safely. I have four children, who are all grown up now, but, particularly in the case of my daughters, I did not want them to be at the mercy of a bus that might not turn up if they had been to entertainment away from where we live.

Many a parent has such a dilemma. Often, perversely, the safest way for young people to get home at night is to drive. Buses often do not run into the rural areas, of which there are some in my constituency. Let us be reasonable: if young people are out, at 20, a 10 o’clock curfew is not going to happen, is it? That is what makes me say that insurance premiums should be spread between all of us. Parents want our young people to get home. We want people to be able to rent a property or a room further out. To bring the argument back to my 21-year-old son, he has gone on to a higher level apprenticeship, and he could not have got access to it, up in Macclesfield, if he could not drive. It is vital—otherwise, many people would not be able to take up opportunities such as apprenticeships or other work that they wanted to do. Mention has been made of carers working in rural environments; such opportunities are not open to young people if premiums are so high.

Eighty-six per cent. of St Albans residents have access to a car or van, which is above the county average, and 89% of residents aged over 17 have a full driving licence. The roads in my area are incredibly congested. Therefore, not only is there competition to get to the jobs and to live in areas that people can afford but they are dicing with the M25 and the M1, some of the biggest and most difficult stretches of motorway in the country. Some of the comments that have been made in the debate about expanding people’s driving experience are hugely important.

I am concerned that, as with many aspects of life, if someone’s parents can afford it, they will be able to afford to be mobile and live somewhere affordable. The children of those parents will have opportunities that other young people do not have. Perversely, although in areas such as mine there is a deficit of blue-collar workers —there is no trouble in finding a job in St Albans, which has almost zero unemployment if a young person wants to work in such industries as caring or hospitality—people in those jobs probably do not live in St Albans. The point I am making is for young people everywhere, because not everyone has access to the bank of mum and dad.

This a question of whether we are truly interested in equality—in this case, equality of opportunity. The insurance companies are having a merry game of it. I know that this debate is about young people and not elderly people, but, believe me, there are a lot of bashed up cars in Waitrose car parks as a result of people suddenly taking on the delights of an automatic car, because they are rather elderly and their hip or knee does not want to press a clutch any more. I can say that because my eldest son works in Waitrose, and it is amazing how often it happens. I am sure that many people will have seen similar things. The elderly are driving for far longer than they would have years ago. They, too, are forced into it by a lack of bus services and so on, but in many cases people who go over to an automatic car have problems with the premiums.

We accept that there are times in our lives when a bump and a dink are more likely to happen. I would like a more pragmatic approach from the insurance companies. They need to be more accountable and to justify the way premiums work. It is disgraceful to just accept a set of statistics that says, “If a person is a young driver, they’re more likely to have an accident; therefore, we’ll just price certain young people out of being mobile.” I would not want to think that young people can be in the privileged position of being free to go where they want only if they happen to have a bank of mum and dad. We should all be concerned about that, because there will be huge parts of the country where young people will probably drive without insurance, and that is the worst possible thing for everybody.

[Stuart Blair Donaldson (West Aberdeenshire and Kincardine) (SNP)]

It is a pleasure to serve under your chairmanship, Sir Roger, and to speak in the debate.

I must declare an interest as a 25-year-old driver who has just renewed his car insurance. It was not as bad as I thought it would be, which is good to report. I do not expect any hon. Members present today to lend me their car, for any amount of money, but the fact that 185,000 people signed the petition shows how much of an issue insurance is for young people. I grew up in and represent a rural area and I know how important cars are to enable young people to get around for work, leisure and social life. In rural Aberdeenshire, much of that takes place in Aberdeen, and people need a car to get there. I used to have to walk for 40 minutes to get the bus before I could drive, so this is a real issue.

The increased use of cars in every aspect of young people’s lives does increase risk. However, like any other age group, young people are not all the same; there are good drivers and bad drivers. Obviously, the statistics show that young people are more likely to have an accident, but as the hon. Member for Bexhill and Battle (Huw Merriman) mentioned, using black boxes to measure the driving ability of individuals is so important. The son of one of my members of staff has just passed his driving test and has a black box in his car; he refuses to let his mum use the car because she puts the bad driving statistics up. It is important to say that not all bad drivers are young drivers and not all novice drivers are young drivers, although the cost of insurance tends to go down once somebody reaches 25.

Car insurance costs rose by 102% from 1994 to 2011; as has been mentioned, that is in no small part due to whiplash claims, which now add approximately 20% to each policy. That is particularly damaging to young people—96% of young drivers now think they are being priced off the road. The issue is further compounded by the increase in the standard rate of insurance premium tax from 10% to 12% from June, which will hit individuals with the highest insurance premiums hardest: young people and those living in high-crime areas. That, along with a whole lot of other things, is hurting people.

It has been said that millennials—my generation—will probably be the first generation who are worse off than those who came before them. We have to look at that as a whole when it comes to premiums for young drivers. Obviously, many jobs require individuals to be able to drive; I would not be able to do my job if I could not drive. Being able to drive can still be the difference between successfully securing a job and failing to secure one.

As has been said, the issue is fundamentally about social mobility. Making longer distance travel easier for those without access to quick, regular or close-by public transport could increase their chances of employment. Another problem that young people face, particularly in rural areas, is sometimes having to wait up to five months to get a driving test. As hon. Members will imagine, that increases their frustration and also means that they have to spend more money on taking top-up tests.

I would like to see powers in this area devolved so that they can be better tailored to rural areas in Scotland and Scottish drivers. I learned to drive when I was 16 in a field with my grandpa, who is a farmer and a former Member; unfortunately, it did not help me to pass my test first time. However, I thought what my hon. Friend the Member for Berwickshire, Roxburgh and Selkirk (Calum Kerr) said about 14 year-olds being taught how to drive in school was interesting. I was taught how to cycle in school time—I did my cycling proficiency test in primary school; I do not know how many other hon. Members did that—so I thought that idea was interesting and should be considered more widely.

I have disagreed with some points that have been made, such as preventing younger people from driving at night. Where I come from in the north-east of Scotland—

[Mrs Main]

It is dark all the time.

[Stuart Blair Donaldson]

It is dark all the time—absolutely. In winter, it gets light after 8 o’clock in the morning and gets dark at about 4 o’clock in the afternoon. Not driving at night would be a real issue and prevent a lot of young people from working.

The constituency that I represent, West Aberdeenshire and Kincardine, has the second highest number of road deaths in the UK, for which there are a number of reasons. Councils, the police, the fire service and the Scottish ambulance service in Grampian run a programme called “Safe Drive Stay Alive”. It has been going for 11 or 12 years; it was certainly on when I was at school. It brings local schools together and shows them a presentation that, to be honest, is pretty horrific. It has graphic images of car accidents, speeches from people who have lost loved ones and speeches from people who have been paralysed by car accidents.

The programme has a huge impact on young drivers, and to some extent I think it is effective in scaring young people into realising that, when they are learning to drive and when they pass their test, they are in charge of a machine that can quite easily kill somebody. It is important to emphasise that learning how to pass a test is not the same as learning how to drive; I am still learning how to drive to some extent.

--- Later in debate ---

[Mrs Main]

The hon. Gentleman is making some excellent points. My other concern about that proposal is this. We encourage people to car share, but if, for example, students were forced to drive their own cars individually instead of getting into a car with a group of other students to go off to college for lectures or whatever they were going to do, we would be increasing the number of cars on the road, which in areas such as mine is the last thing anyone wants.

[Richard Burden]

The hon. Lady is right: all aspects of graduated licensing need to be considered. A menu of different kinds of graduated licensing could be brought in. I will say this, though. Although it is right to be aware of the drawbacks of the different kinds, it is also the case that, in a number of other countries, the introduction of different forms of graduated licensing has promoted road safety and reduced the prevalence of new drivers and, in particular, young drivers being involved in incidents. That is why many safety organisations, the insurance industry and, indeed, research from the Government’s own Transport Research Laboratory have said that it needs to be considered seriously.

We are back to why we need a Green Paper. A Green Paper is just that. It is not a blueprint or a set of specific proposals; it is a discussion document that lays out the kinds of option that need to be looked at and the kinds of area where Government action may be necessary, and puts that out to consultation. Given that the insurance industry, road safety campaigners and so many others have been calling for this for years and given that the Government themselves felt in 2013 that producing a Green Paper was the right thing to do, I simply do not see why we are still waiting for one to be published.

On road safety, there have been important initiatives in relation to the practical driving test: the greater focus on independent driving, including the use of sat-nav, as well as time spent on high-speed roads other than motorways. Anything that allows examiners to make a better assessment of a candidate’s ability to drive on all types of road is important. All those things should be able to reduce the number of casualties and collisions on our roads.

The hon. Member for St Austell and Newquay was right in one of the first things he said: all too often, the driving test tests a driver’s ability to pass the test, rather than their ability to drive. That is why we can be much more imaginative about how the driving test is developed. Part of that goes back to whether graduated licensing could come into it. It also raises questions about whether speed awareness can be incorporated more into the process of learning to drive, and whether the concept of appropriate speed, as well as the concept of speed limits, could form part of it.

Of course, hon. Members have also been right to say that, beyond the question of the test itself and learning for the test, there can be all sorts of other initiatives in relation to early driving to promote the idea that, when a young person gets their provisional licence, that will not necessarily be the first time they have sat in the driving seat of a car and been able to get some experience. I was really interested to hear about the early drive courses that take place up in Duns and the involvement of John Cleland. It is interesting that they are taking place in Duns: Charterhall was of course the circuit where one of the most famous racing drivers of all time, Jim Clark, learned his craft. I am absolutely convinced that that kind of early drive course can help.

At the other end of the scale is the “Safe Drive Stay Alive” initiative talked about by the hon. Member for West Aberdeenshire and Kincardine (Stuart Blair Donaldson), who speaks for the Scottish National party. I have seen the work of “Safe Drive Stay Alive” and the impact of the really graphic way in which it portrays what happens if we lose a loved one in a road incident—the impact that that can have on young people in schools. Again, it is right that we support something that can contribute to reducing the number of incidents.

This issue has to be tackled on so many different fronts. My hon. Friend the Member for Liverpool, Riverside (Mrs Ellman) was right to draw attention to the Transport Committee’s work on enforcement, because part of the picture is ensuring that the regulations that we have are properly enforced. It is very difficult to reconcile proper enforcement, on which the Transport Committee has done some really important work, with the cuts in the number of traffic police; they have been cut by about one third outside London. If we want to make our roads safer, part of that is about the way we train our drivers, part of it is about the way they are examined and part of it is about the technology available in motor vehicles, but a vital part of it is how we enforce the laws that are there. Frankly, the cuts we have seen in traffic policing are incompatible with that.

Another thing that is part of the equation and that we need to bear in mind is the question of road safety targets. If I am right that the strategy we need to employ to make our roads safer involves different agencies—examiners, local authorities, the police, the insurance industry and many others—is it not time that we have shared responsibility for making our roads safer? In other parts of the world and international bodies that we are part of, road safety targets are seen as something should be supported. We used to have road safety targets in this country until they were abolished by the coalition Government. They played an important role in focusing minds, and contributed indirectly to the fall in the number of people killed or seriously injured as recorded in the casualty statistics that we had in this country—those statistics are now sadly starting to level-off and there are worrying signs that they are starting to go in the other direction.

This has been a constructive debate and some important points have been made. There is no silver bullet. In conclusion, the elements that could help to address the issues we have talked about today are as follows. In the insurance industry, we could see far greater transparency at both policy level and the individual level. On the governmental level, it is time we had a Green Paper on young drivers so that Government can have a rounded look at what is required. That could, and should, include the potential of telematics and graduated driver licensing for improving safety on our roads and reducing incidents among young people. It is important that we get the Vehicle Technology and Aviation Bill right to ensure that it leads to the reduction of premiums for automated vehicles, and not the opposite. It is important that we look imaginatively at improvements to the driving test and at ways of educating young drivers before they have their provisional licence and in post-test learning. We need to ensure that the right numbers of traffic police are there to enforce the laws we have, and it is time that we brought back road safety targets so that we can have a vision for zero being killed or seriously injured on our roads. Other countries have piloted and pioneered “Vision Zero” and there is no reason why we should not have it as well. Bringing in road safety targets is a direct way in which we can contribute to a strategy for achieving that vision.

--- Later in debate ---

[Andrew Jones]

My hon. Friend is absolutely right to clarify that he was not asking for the test to be made easier; that is absolutely correct.

Colleagues from Northern Ireland, who are no longer in their place, made contributions. This is an entirely devolved matter in Northern Ireland, and my responsibilities do not extend there.

We heard from colleagues about the insurance market and how benefits can be passed on. It is important that we see all the signs of a good, thriving, competitive market, including people shopping around and competition on price and service. We do see that, but we also see inertia. From April this year, changes to the Financial Conduct Authority rules will require insurers to disclose last year’s premium to the policyholder at the point of renewal, which should incentivise shopping around. The randomised controlled trials certainly showed that that prompted up to 18% more people to switch provider or negotiate a lower premium. It would be wise of me to consider following that example, rather than trying to renew on the very last day, as I did this year, only to find an enormous hike in my premium, unlike the hon. Member for Berwickshire, Roxburgh and Selkirk.

The issue of targets has been raised; it is raised frequently. I have no desire to reintroduce targets. They can help in other countries, as they have helped in our past, but the Government’s clear determination to make progress on road safety is evident in the road safety statement that we published, the initiative in the autumn statement to channel funding into the 50 least safe stretches of road in our country and the changes that we made to the penalties for mobile phone use, which came into effect this month. By the way, that is most important; we know that 60% of people killed or seriously injured in an incident involving a mobile phone are younger drivers. This is about cultural change, and we are seeking it with the penalty change.

I will not consider reintroducing targets. If targets were the right answer to policy, then policy making would become remarkably simple, which I do not think it is. Frankly—to make a political point, which has not been done in this debate—if targets were the answer to everything, Gordon Brown would have left us a very well-governed country, which I do not think he did. Policy is a little more complicated than targets.

At the heart of this debate is the potential cap on insurance premiums. It is a long-standing principle that insurers set their premiums according to their assessment of the risks involved, notwithstanding my hon. Friends’ point about gender.

[Mrs Main]

I am pleased that my hon. Friend mentioned that. Is there any opportunity for us to consider the gender directive? If we are truly interpreting risk, suddenly hiking premiums for young women seems unfair.

[Andrew Jones]

Not right now, but who knows where the future will take us? We have some idea, but the detail will still need to be filled in. Opportunities will certainly arise and that may well be one of them.

I want us to get to the point where individuals are assessed according to their risk and where the Government do all we can to de-risk driving and incentivise safe driving. Motor insurers use a wide range of criteria to assess the potential risk associated with a quotation, including the age and driving experience of the applicant, the type of vehicle and where it is kept. The level of premiums is a commercial matter for individual insurers, because they use their own funds to underwrite the policies they issue. It is critical that the insurance industry takes such decisions for itself; the Government should not seek to control that market. However, I confirm to all who signed the petition, and to Mr Parker, its originator, that I am extremely sympathetic to their point. I hope that the explanations of our actions that I have given demonstrate our commitment to making progress.