Cost of Motor Insurance

David Rutley Excerpts

Tuesday 8th November 2011 Commons Chamber

[Jim Dowd]

No, it was not a Model T—it was a Mini, back in 1968. It was six years old and it cost me just over £100. By the time I had got my insurance, which was £60, plus four-months’ road tax—as it was then and as the rest of the world calls it, or vehicle excise duty as we call it now—and an MOT certificate, I had spent as much on those three items as the car had cost me. I was quite young at the time and that was probably reflected in the premium, but none the less it was a shock to have to spend as much on ancillary costs as on the vehicle itself.

Today, we hear stories of young people having a vehicle costing a few hundred pounds and insurance premiums of more than £1,000. It is not the cost of the vehicle that is the issue; it is the risk of using it on the road. Effectively, motor insurance is a public liability insurance; one does not necessarily have to insure one’s property but one does have to insure against damage to other people’s property and, indeed, to other people. It is the scale of the problem that we need to look at. As has been said, there are more than 30 million cars on the road and it does not take a genius to work out that as the number of cars on the road rises, so the likelihood of accidents rises in similar proportion. However, I believe that this country has a very good, but still improvable, record on reducing road accidents and certainly road casualties.

One shock that I had in 1992 when I was first elected to the House—apart from having been elected to the House—was the fact that for the first time in more than 20 years I had to buy my own car. I had experienced the comparative luxury of having a company car in the intervening 20 years and precisely because I did not have a personal insurance record—a no-claims bonus, as everyone knows it—at that time, the first insurance quote I got was more than £1,200 for a very medium-range car, which my former company kindly sold to me. It was only when I got the company to provide me with a certificate saying that I had had blemish-free motoring for 10 years or more that the insurance company reduced the figure, but it still only came down to £800—and that was the better part of 20 years ago. The problems with increased costs in insurance and the increased likelihood of people driving uninsured, as well as the risks posed to those people and, more particularly, to everybody else, are intolerable.

Motor insurance is a curious entity in that it is one of the few examples, although not the only example, of a statutory obligation to purchase a product from a private supplier. There may be far more than one supplier, but one has to have motor insurance to drive on public roads. That places on the motor insurance industry particular responsibilities that it should meet but that would not otherwise arise. I think the situation implies that the industry should have the most stringent, open, transparent—I think a Government Member said that transparency was a key issue—and fair standards of behaviour towards customers because it has a captive market. I accept that people can move from one provider to another, but one thing they have to have to drive on public roads is motor insurance. If one’s household contents insurance premium becomes unsustainable or extortionate, one can either go to another supplier or take the risk on oneself. One can say, “The premiums are not worth what I’m paying: I’ll take the risk on myself. I don’t have to have it,” but the same is not true of motor insurance. If one wants to drive on a public road one has to be insured.

The industry is confronted by a number of problems, to which others have referred. For example, there is the rise in personal injury claims, almost all of which seem to include claims for whiplash injury, as well as the issue of referral fees, which the report has looked at and which others have mentioned. There is also the growth of the no win, no fee—or ambulance chasing, as it is known in some circles—industry, and the business of downright fraudulent claims. All these issues have to be grappled with by the industry, which is an extensive one, and I am sure that people will have different views about how well it is dealing with them.

The report covered a number of areas, including personal injury claims, referral fees, uninsured drivers and fraud, but it did not cover an area that I want to make particular reference to on behalf of one of my constituents. He is 73 years old, and he has been working as a minicab driver for a number of years. He has a state pension, although not a full one, and that is his only other income, so he is keen to carry on working. In August this year, his then insurer advised him not that it was putting up his premium but that it was cancelling his hire and reward cover. It gave no other reason than the fact that he was now 73, as though he had just gone across some magical threshold. It was not even prepared to take on the risk at a higher price.

My constituent quite understands that, as people grow older, so they might become a bigger risk and therefore have to pay a bigger premium, but the insurer would not increase the premium. It simply would not accept the risk, for no other reason than his age. His wife is somewhat younger than him, but she, too, is past retirement age. She is still working, however, so his recourse to benefits would be somewhat limited. He contacted other insurance companies and brokers, but to no avail. He got no offers at all to renew his hire and reward cover, which is essential for anyone wishing to work as a minicab driver.

My constituent’s social, domestic and pleasure policy was unaffected, except for a marginal increase in price. I could understand if the insurer felt that he was a danger to the public and should therefore not be on the road. I would not agree with such a proposition—I do not think that any sensible person would—but it would at least have the characteristic of consistency. As things stand, however, it is perfectly legal for him to drive on the roads as a private citizen in his very unglamorous minicab, but it is no longer possible for him to pursue his livelihood as a minicab driver.

The majority of the population have a driving licence, and I quite understand why they expire on the licence holder’s 70th birthday. The assumption is that we need to consider whether people are still fit to drive on public roads. The primary consideration must be safety, not least the safety of other road users, and it is perfectly reasonable to check people’s eyesight and reaction times more as they get older, to ensure that they can still drive safely. We are told that we have an increasingly ageing population, so this is going to become more and more of an issue. There is no question but that everyone who drives on public roads should be deemed fit to do so, but I cannot understand the distinction between my constituent driving as a private individual and driving for gain as a minicab driver.

After my constituent had been to see me, I wrote to the Chancellor of the Exchequer and to the director-general of the Association of British Insurers. I got a reply from the Financial Secretary to the Treasury, in which he states:

“Some age-based practices, such as the use of broad age bands combined with significant price increases between age bands, may appear arbitrary. Insurers, however, use age bands as a means by which to price the risk of insuring a variety of individuals, and the transaction costs involved. The effects of age bands will, however, be reflected in the premium charged to an individual should they enter a new band.”

As I have said, my constituent has been denied that opportunity, as he has not been put into a new band. His premium has not been increased; it has been refused.

I also received a response from Mr Otto Thoresen, the director-general of the Association of British Insurers. I will read out a point that supports exactly what the Committee says in its report. He says:

“In 2010, motor insurers paid out £1.21 in claims and expenses for every £1 received in premiums. A combination of high legal costs, rapidly increasing personal injury claims, fraud, and a stubbornly high level of uninsured driving have driven the industry to a point where, after price stability and, in many cases, falling premiums in the middle of the last decade, they have now had to rise.”

The Committee makes that point as well. Mr Thoresen went on to say that there were issues relating to the taxi insurance business, and that

“evidence across the market has shown that the probability of being involved in an accident worsens as drivers reach their mid-70s”,

as my constituent is now doing.

One of the objections to the way in which insurance companies conduct their business is that, when it suits them to do so, they treat people as individuals, and if an individual has a particularly poor record, they will suffer the consequences. However, when it suits them, they also treat people as part of a group that has an alleged poor record, and increase the premiums accordingly. This never seems to work in the opposite direction.

Mr Thoresen suggested that my constituent continue to try to secure insurance through a specialist broker, and he very kindly gave me the details of four specialist companies for him to approach. My constituent contacted me again in the middle of October, having contacted all four companies. Of the four, three would not offer him insurance at all, and the one company that did so wanted about £750 a month. That amounts to well over £9,000 a year. I have absolute confidence that my constituent is an excellent minicab driver, and I am sure that his customers must be among the happiest in south London, but I am also fairly certain that he does not make enough money to pay £9,000 a year in insurance costs.

In the Financial Secretary’s response, he also said:

“Research has indicated that no age groups are specifically excluded from the insurance market”.

I suggest to him that it is unnecessary specifically to exclude anyone if they are being offered a price that is completely and utterly unaffordable. Theoretically, everyone in this country can go and stay at the Savoy—there is not a sign outside saying “No riff-raff”—but most people would not consider doing so because they cannot afford it. Similarly, in this case, that insurer made the cover so unaffordable that it might just as well have banned my constituent from having it. He and I have no objection to the need for an increase, but we object to the scale and disproportionate nature of that increase. All he wants to do is continue to pursue his livelihood and not have to depend on benefits.

[David Rutley (Macclesfield) (Con)]

The hon. Gentleman is making some important points. Does he agree that there might be scope for some new products in the motor insurance industry that could be tailored to older or younger drivers and perhaps designed around themes such as pay as you go? Such products could be made more affordable if they were tailored to specific age segments that have different risk profiles from those of the average driver.

[Jim Dowd]

I am grateful to the hon. Gentleman for that suggestion. I said earlier that the insurance market should be more personalised, rather than more generalised. Companies should certainly look into that. I fear that, because the motor insurance sector is a captive market, we do not get the level of service that we would get from, say, the home insurance sector, because it knows that everyone has to have insurance if they want to drive on public roads. I agree with the hon. Gentleman, however, that products should be tailored more specifically to the individual.

As I said, my constituent wants to continue to work. He does not want to become dependent on benefits. Some years ago, the then Secretary of State for Employment was famously misquoted as saying that people should get on their bikes to find work. The present Secretary of State for Work and Pensions advised people in south Wales to get on the bus and go to Cardiff to look for a job. My constituent wants to get in his minicab and work, but the insurance industry will not let him.