Car Insurance: Young People

Huw Merriman 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.

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[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.

[Huw Merriman]

I absolutely agree with the hon. Gentleman on curfews. The analysis seems to show that telematics companies that put curfew penalties in place were causing more dangerous driving, because young people were trying to get back in time. I applaud the move to give people hours on top—almost pay-as-you-go—as a reward for good driving, rather than curfews or things like that.

[Stuart Blair Donaldson]

The hon. Gentleman makes an important point. When I was at school, I had friends who were involved in serious car accidents, and somebody a couple of years above me was killed in a car accident. It is so important that, when educating young people, we strongly emphasise that driving is an incredibly important part of life, but that they need to take it seriously, be careful and show respect to other road users.

There are some other issues that do not pertain to young people. As one who comes from a rural area, I find Sunday drivers coming out to the country from Aberdeen incredibly frustrating. When people do not know how to drive on country roads it is incredibly dangerous; there can be really sharp bends, tractors or sheep on the roads. The issue is not all about young people; we need to look at this much more widely and consider all the options.

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[Huw Merriman]

I am grateful to the Minister for clarifying that point. Does he agree that more could perhaps be done to incentivise the payment of compensation awards annually rather than as lump sums, so that the risk of return would effectively remain with the insurer, which would then pay out? My understanding is that the legal profession is keener on lump sums; I believe it is said that lump sums mean greater fees for lawyers. As a former lawyer, I cannot believe that any lawyer would be guilty of thinking of themselves in such an instance, but perhaps we could do more to encourage a move away from lump sum payments of compensation.

[Andrew Jones]

My hon. Friend makes an interesting point. Notwithstanding the element of fees in the legal profession, I would expect the insurance and legal professions to sit down and work that out for themselves. What is insurance for? The point of it is that it is collective pooled risk in case something bad happens in our lives. How that is met is for the insurance companies to work out. We have a competitive and innovative sector, which I am sure will be listening to this debate, including to my hon. Friend’s suggestion.

As a Government, we remain determined to address any knock-on effect on consumers caused by the change, which is why we will launch a consultation before Easter to review the framework under which the new rate was set, to ensure that it remains fit for purpose. My right hon. Friend the Chancellor of the Exchequer chaired a roundtable late last month with representatives from the insurance industry to launch discussion on the consultation.

Colleagues have mentioned the importance of driving licences in rural areas due to the difficulty of accessing public transport mechanisms. I recognise that as someone whose constituency, although not rural, certainly has some rural parts. We must ensure that other forms of transport are viable alternatives to motorcars for young people, particularly in rural areas. It is not easy. We understand the importance of affordable, accessible transport and recognise the extra pressures placed on local authorities throughout the country to provide those services, particularly as the lower the population density, the harder it can be for local authorities to do so.

That is why, during the spending review period, my Department will provide more than £1.5 billion to local authorities through the integrated transport block, which will provide capital investment in small transport improvement projects. It will also provide significant road maintenance budgets, which relates to the point made by my hon. Friend the Member for St Albans (Mrs Main). If her constituency is like mine, she will receive more correspondence on potholes than on any other transport issue.

The integrated transport block investment scheme reflects the Government’s belief that local authorities are best placed to decide where investment should go in response to the needs of local communities. It is a local decision to solve a local problem. There are numerous examples of Government-funded road transport schemes throughout the country, such as voluntary car schemes. We have mentioned the Wheels 2 Work scheme and how it could help, although it has its limitations, and we have a £25 million community minibus fund, to name a few initiatives. Such initiatives are helping young people to access work, education and so on. The Government recognise the need for investment in alternative modes of transport, alongside a commitment to road safety and to bearing down on car insurance premiums for young drivers.

To return to some of the questions asked, my hon. Friend the Member for St Austell and Newquay mentioned the driving test and how it is evolving. I do not think the question is about making it harder. He might be interested to know that, according to the Driver and Vehicle Standards Agency, the first-time pass rate for the 2015-16 financial year was 47.5%. It is not that high. People are not looking at the driving test and thinking, “Easy; piece of cake.” More people fail first time than pass. It is a question of making the driving test more realistic and improving training before they get to it and after, as we discussed previously.