Cost of Motor Insurance

Louise Ellman Excerpts

Tuesday 8th November 2011 Commons Chamber

[Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op)]

I beg to move,

That this House expresses concern over the large increase in the cost of motor insurance in recent years, including in relation to young drivers; welcomes the report by the Transport Committee on the cost of motor insurance (HC 591) and its continuing inquiry into the reasons for this increase; notes that factors explaining the cost of motor insurance include the number and cost of personal injury claims arising from road accidents, assessment of risk, fraud, and uninsured driving; notes that the Government has taken some steps to deal with these issues, including a ban on referral fees in personal injury cases, but that more could be done; further notes that Ministerial responsibility for these issues is split across several departments; and calls on the Government to establish a cross-departmental Ministerial committee on reducing the cost of motor insurance and to publish a plan for dealing with the different aspects of this problem during this Parliament.

Members of the Transport Committee are signatories to the motion, and I thank the Backbench Business Committee for allowing me to move it.

Many Members will have received letters complaining about the rising cost of car insurance. People with clean records who have driven for years without incident have suddenly found themselves facing big increases in their premiums, and young drivers are now being asked to pay about £3,000 for insurance, effectively forcing them off the road.

The Committee started looking into this issue in November of last year, and we published a report in March. It generated massive interest. People are extremely concerned about their premiums, but serious questions about how the insurance industry works were also raised, and, unusually, we decided to reopen our inquiry.

It is, perhaps, fair to say that motor insurance was not the Minister’s highest priority before our inquiry began, but I hope it has become a higher priority now. Many Members have campaigned on the cost of motor insurance, and I single out for tribute my right hon. Friend the Member for Blackburn (Mr Straw), who has campaigned strenuously for the abolition of referral fees.

The AA’s regular survey of the cost of motor insurance shows that quoted premiums have more than doubled since 2006, reaching an average of £921 last month. The premiums faced by young people, and especially young males, are significantly higher—in many cases, about £3,000.

[Jonathan Evans (Cardiff North) (Con)]

Did the Committee also look at the impact of the recent Test-Achats judgment on gender discrimination? At present, there is a significant disparity between insurance rates for young women and young men, but that case argues that the rates should, in fact, be the same.

[Mrs Ellman]

I thank the hon. Gentleman for his question. The Committee did not look specifically at that point, but I fear that if there is to be equity, it will be equity upwards, rather than lead to a lowering of premiums.

High premiums have a major impact on the lives of our constituents. Motor insurance is rightly compulsory, but for many people driving a car is a necessity, perhaps for getting to work, to college or to hospitals for appointments, as well as for visiting friends and family, doing the shopping or taking children to school.

I and other Members have received a great deal of correspondence from people wanting to give examples of the problems they have experienced. I received a letter saying the following:

“My partner has just tried to insure me again on our vehicle which is not a sporty flash car, to be told that it would cost him an extra £1,370.”

A lady from Birmingham wrote:

“My car was involved in an accident where a lorry collided with my car. The driver accepted it was his responsibility…My renewal was due and my premium had increased from £700 to over £2,000.”

These stories illustrate why the Government must act.

Surprisingly, the recent increase in premiums has coincided with significant improvements in road safety, which is part of a welcome trend of falling numbers of deaths and serious injuries on the roads. Why have premiums risen so much, therefore?

There is better access to justice, with no win, no fee arrangements. Those arrangements are being changed, but we must not return to a situation in which justice is available only to the rich.

There is also cold calling, where claims management companies canvass for claims, often using personal information obtained from unknown sources. Where is the regulation of data protection that is supposed to be in place? Claims management firms deserve special scrutiny. They encourage people to claim, and to make multiple claims when they might not otherwise have done so. Premiums in the north-west are 50% higher than the national average, apparently because of the activities of these companies.

Referral fees have been in the news. They are paid to a number of players in the industry as a reward for passing on business, thereby encouraging claims and sometimes inflating bills. They are not paid to insurers alone; a number of bodies are involved, including insurance companies, solicitors, car hire firms, claims management companies, medical experts and vehicle repairers. Although the Government have started to act on referral fees, what they are doing does not encompass all those sectors of the industry, and neither does it take into account how companies might try to get around the abolition of referral fees. There are now alternative business structures, where non-lawyers can buy legal practices. How will the Government ensure that companies do not get around the ban on referral fees through taking such steps?

Fraud is a major concern, including the staging of accidents by criminal gangs. That adds £80 to the average premium.

[Julian Sturdy (York Outer) (Con)]

The hon. Lady is making some powerful arguments on issues that the Transport Committee has addressed. Does she agree that we need greater transparency in the industry if we are to drive down the costs of motor insurance?

--- Later in debate ---

[Mrs Ellman]

Yes, and the Committee has called for greater transparency, but the Government did not comment clearly on that point in their response to our report. As we did not get a clear answer then, I shall repeat the question now: what are the Government’s views on greater transparency?

Some criminal gangs commit fraud by staging accidents, but fraud can also include giving false information. We commissioned a survey with Young Marmalade, an insurance company specialising in young people, and a third of young drivers said they had considered giving inaccurate information to insurers in order to try to get a lower premium. There are plans to give insurers access to Driver and Vehicle Licensing Agency data, but when will that be implemented? Whiplash claims are another source of increased costs and premiums. We need to find a way of identifying when such injuries are genuine.

One of the reasons for the high premiums faced by young people, and in particular young males, is the high accident rates among them. The accident rates for young males are 10 times higher than those for older people. Some years ago, the Committee looked into this issue and made a number of recommendations, including changing attitudes and enforcing a graduated licence scheme, but we are still waiting for the Government to respond. We support the “black box” idea developed by some insurers to monitor and assess the driving standards of young people so that that information can, perhaps, be used to calculate their premiums.

I am glad that the Office of Fair Trading is looking into the industry, and that the Government have started to act by starting the legal process to ban referral fees, but do we truly have any confidence that premiums will come down? I do not believe we have seen any evidence of that.

A great deal more needs to be done and that involves a number of Departments: the Department for Transport; the Home Office; the Ministry of Justice; the Department for Education, which springs to mind immediately when one thinks about road safety and attitudes; and perhaps some others. Diverse Departments are involved and responsible for this area, so a cross-departmental working party is required, and that is why I have brought this motion to the House. I hope that the Government will be able to agree to setting up such a working party, so that insurance premiums can become affordable and the growing outrage of people forced to pay extortionate rates can be addressed.

--- Later in debate ---

[Roger Williams (Brecon and Radnorshire) (LD)]

I welcome this opportunity to speak in the debate. I want to say a few words about young drivers, the insurance industry and Government policy. I have some sympathy with the excellent points about why the industry is being pushed into charging ever higher premiums, but the premiums young people are charged are very high indeed. Many would argue that that is for good reason. Premiums have been quoted this evening of £2,700 for a newly qualified male driver. I shall quote a few statistics that might substantiate that.

One in five young drivers will have an accident in their first six months on the road, and 17 to 24-year-olds make up 12% of insured drivers but 25% of claims. An 18-year-old is three times more likely to be involved in a car accident than a 48-year-old, and young drivers tend to be involved in more serious accidents than older people, with the average claim for a younger driver being three times more than that for older drivers. Men between the ages of 17 and 20 are seven times more likely to be killed or seriously injured on the road than all male drivers. I thank the road safety charity Brake for supplying me with that information. There is a clear cost to insuring young drivers.

More tragically, every year 3,300 young drivers and passengers are killed or suffer life-changing injury as a result of road crashes. In rural areas there is a lack of public transport so young people need to drive, and I am absolutely not discouraging them from doing so. Many wish to have the opportunity of independence from their parents and, not having public transport, take to driving, but we must ensure that young people are as safe as possible, not just for their sake but for passengers and other road users and pedestrians.

In my constituency in 2006 we had the tragic loss of life of four young girls on Llangynidr mountain, and this summer a young girl from Hay-on-Wye was killed in a neighbouring village in Herefordshire. Many of these tragedies can be avoided. I have worked with Brake and with Sarah Jones of Cardiff university on graduated driving licences, whereby restrictions are placed on newly qualified drivers. The proposals supported by Brake are, first, a restriction on the number of young passengers in the car. Often the excitement of first going out and having friends in the car leads to reckless and ill-considered driving. There should be no driving for young newly qualified drivers between 11 pm and 6 am, unless for work purposes. There should be zero tolerance of alcohol, and no driving on motorways. This is not a radical plan. Countries with a form of graduated driving licence include New Zealand, Australia, much of Canada and 48 of the American states.

[Mrs Ellman]

Is the hon. Gentleman aware that the Transport Committee considered this issue in the previous Parliament and made precisely the same recommendation as he is making now? The then Government did not respond positively; perhaps this Government will.

[Roger Williams]

I was aware of the report, and I have met the Minister in this Government. While he understood my good intentions, he was not able to reciprocate positively.

--- Later in debate ---

[Mrs Ellman]

We have heard many excellent contributions this evening. Members have reflected different experiences, but all have given us the same message: insurance premiums are too high, the insurance industry is dysfunctional and more must be done. I recognise the work that the Minister has been doing, particularly on uninsured driving, on referral fees, and on improving driving standards. I am pleased that the insurance sector has now adopted the Select Committee’s recommendation to fund a specialised unit in police service to detect and act on fraud.

I have listened carefully to what the Minister has said, and I recognise his good will and commitment. I do not wish to divide the House on the motion tonight, but I must warn him that the Committee will continue its scrutiny, and we look forward to the next occasion on which we can question him on what has been done in his Department and across government, because that is the only way we will make progress on this important issue.

Question put and agreed to.

Resolved,

That this House expresses concern over the large increase in the cost of motor insurance in recent years, including in relation to young drivers; welcomes the report by the Transport Committee on the cost of motor insurance (HC 591) and its continuing inquiry into the reasons for this increase; notes that factors explaining the cost of motor insurance include the number and cost of personal injury claims arising from road accidents, assessment of risk, fraud, and uninsured driving; notes that the Government has taken some steps to deal with these issues, including a ban on referral fees in personal injury cases, but that more could be done; further notes that Ministerial responsibility for these issues is split across several departments; and calls on the Government to establish a cross-departmental Ministerial committee on reducing the cost of motor insurance and to publish a plan for dealing with the different aspects of this problem during this Parliament.