Car Insurance: Young People

Louise Ellman Excerpts

Monday 20th March 2017 Westminster Hall

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

It is a pleasure to serve under your chairmanship, Sir Roger. I thank the hon. Member for St Austell and Newquay (Steve Double) for his comments, and I agree with the basic points that he made. I will focus on some of the issues he mentioned and perhaps refer to one or two other issues that are relevant.

The first point, and one that we should all accept, is that this petition is extremely important. It not only draws attention to an issue that is of great concern to many young people and their parents, but suggests a remedy, which is important. Even if the remedy is problematic, the petition suggests what to do about the problem, rather than just enunciating it. Figures have been presented to us. The cost of premiums for young people is currently between £1,450 and £7,000. There is clearly a massive problem there. That has resulted in a number of things. Some young people who need to drive are not driving. They are people who need to get to college, to work and to get on with their lives. That problem affects not solely those living in a rural area; it can affect people living in other sorts of areas as well.

The problem can also lead to people fronting—an illegal practice in which an older person, perhaps a parent, applies for the insurance and acquires it, but in reality it is for the young person. It can also result in young people driving uninsured, which is dangerous and illegal and should not happen. When we look at the extent of the problem, we need to think about all those aspects of it.

The problem is serious and may be escalating, particularly as we have been told that the cost of motor insurance may increase. It is not a new problem. In 2009 the then Select Committee on Transport conducted a report on novice drivers. This was identified as one of the issues then. At that time, the Committee suggested a number of ways in which to address it, including a different way of looking at the driving test, better training, more publicity campaigns and graduated licensing. Since then, the same sorts of suggestions have been made, but not very much has been done to change the situation, except perhaps for the development of telematics, which could be a game-changer. I will come back to that.

Successive Transport Select Committees have looked at the issue. I have already mentioned the 2009 report on novice drivers, but more recently the Transport Committee has looked at other aspects of the issue. It looked at the cost of motor insurance in 2011 and included in that investigation the high cost of such insurance for young people. In 2014, we looked at safety issues. In 2016, we looked at road traffic law enforcement, which related to many of the safety issues that are highly relevant to the risk attached to driving by young people. Therefore, the issue is not new. We have to ask why, as the issue was identified so long ago and is so well documented, so little has been done to address it. I hope that the petition will help to change that situation and lead to further action.

As has been pointed out, when justifying the very high premiums for young people insurers point to the higher risk that they pose. When we look at the statistics for casualties on the roads, we perhaps see some of what the insurers mean. We keep being told that we have a good road safety record. That is true in the sense that fewer people are being killed and seriously injured on our roads, but the stark figures make us register that there is still much too much unnecessary loss of life and too many often life-changing serious injuries are inflicted on people. In 2015, the last year for which we have figures, 1,730 people were killed on our roads and 22,144 were seriously injured. Those are very serious figures, even if they were higher in previous years, as they were.

When we look at what is happening in relation to young people, however, the figures are startling. We have already heard some. There are different ways of putting them. One way causes lots of shock waves. It is when we say that nearly half of 18 to 24-year-olds crash within six months of passing their driving test; and 18 to 25-year-olds, who represent 7% of licence holders, are involved in 25% of road deaths. Those figures are shocking and something has to be done.

The insurers say, “High risk, so high premiums.” We argue about that, and we are right to challenge the insurers about some of their figures, and how they assess risk and produce premiums, often with little competition in the sector. That, however, brings us on to the perhaps bigger issue of risk to human life, which is writ large in relation to young people.

What are the reasons for that higher risk and what can be done about them? Overconfidence in young people may be one reason—they may feel that having a licence and a car is to do with becoming an adult, perhaps leading to overconfidence, in particular among young males, and that can affect driving. Carrying passengers may also be a reason for that higher risk. Sixteen to 17-year-olds carrying passengers are four times more likely to die in a crash than those not carrying them. That figure must make us all sit back.

The fatal four reasons for death and injuries on the road—the major reasons for accidents and deaths on the roads accepted by the police—are speed and driving too quickly, drink and drug-driving, not wearing seatbelts, and driving when distracted, such as when using mobile telephones, although there are other distractions, too. Action is needed in all those areas. Better training is necessary, as are a reassessment of the driving test, which is being looked at again and is highly relevant, and educational and public awareness programmes.

One factor has developed since the time of that earlier Transport Committee inquiry: the growth of telematics-based insurance, which is insurance where premiums are related to the nature of the driving skills, rather than simply to the age of the person. There are 75,000 telematics-based insurance policies. Perhaps it is connected with the idea of graduated licences, where new drivers—they are mainly young but not always—are not able to drive exactly when they want, with as many passengers as they want, at all times of day or night, until they have had more experience. Telematics looking at driver behaviour, together with the idea of graduated driving licences, could be a solution to the problem, together with better training and better awareness of safety.

I will give one word of warning in relation to costs coming down. Insurers tell us that their premiums are based on the level of risk assessed. The assumption is that, were some of the level of risk to be reduced, the premiums would automatically come down. That does not always happen. In the past, such as with soft-tissue injury, insurers said that, if certain measures were enacted, the premiums would come down; the measures were enacted, but the premiums have not come down. The insurers have now produced a different reason; they say insurance tax is a reason for the costs not coming down. So a word of warning: insurers may say, “Lessen the risk and the premiums will come down,” but they might not do it. However, we are looking here at life and at lessening risk. All those issues must be taken seriously into account and acted on, so that we do not spend a lot more years having further debates, in which we repeat what was said here, say how correct it was and how it is still correct, but nothing has been done in the meantime. I hope that we have action.

I congratulate Rhys Parker and the petitioners on putting the e-petition together to ensure that the issue is ongoing. Action has to be about improving safety, saving lives, preventing serious injuries and ensuring that insurers face up to their responsibilities and keep their promises.

--- Later in debate ---

[Andrew Jones]

We have been considering the idea of graduated driving licences but I am not inclined to support them, because we want to strike the right balance in respect of freedom for young drivers. As we have discussed, many people need their vehicles, particularly in rural areas; rather than imposing post-test restrictions on novice drivers, our efforts are all about improving driver training and testing so that people are better able to benefit from a driving licence.

I am not looking to introduce a graduated driving licence system in the UK. We have heard from colleagues how that might impact on people who live in darkness for part of the year as they perhaps seek to get to shift work early. All those factors have impacted on and led to our decision not to go down the route of a graduated driving licence.

[Mrs Ellman]

I note what the Minister said about the need for better training. Does that extend to training after people have passed their driving test?

[Andrew Jones]

Yes. I am very keen to encourage people to do more learning. We continually learn as drivers and get better continually at assessing risk. I highlight the Pass Plus scheme, which colleagues have mentioned. Pass Plus has six modules, which broaden the range of driving skills that people need. It covers driving in town, in all weathers, on rural roads, driving at night, driving on dual carriageways and driving on motorways. The Driver and Vehicle Standards Agency issues people with a certificate to say that they have been through the course. That can often be used to access lower insurance premiums, so yes, I entirely agree with the principle.

A number of factors demonstrate that we are committed to improving the safety of all road users and especially those who are at greater risk, such as young drivers. I very much like the road safety training highlighted by the hon. Member for Berwickshire, Roxburgh and Selkirk (Calum Kerr). I am aware of other schemes around the country. He offered me a visit—well, he lives in a very nice part of the world and I like the idea of visiting, so if he lets me know, that might be a possibility. To make a cheeky comment, I like finding ways to show that our two fine countries are stronger together. I am very keen to take ideas from all parts of the world, not just all parts of the UK, if they can make our roads safer. I am aware of comparable schemes—including in London, again with links into motorsport—that are all aimed at younger drivers, and I recognise the importance of those.

We are seeking to improve the safety of all road users and especially younger drivers, who are more vulnerable and at risk of being in a collision. Nine out of 10 road collisions have an element of human error, so if we can cut the amount of human error, it will have a huge impact on road safety. I therefore agree with the points made by the hon. Member for Birmingham, Northfield (Richard Burden) about the Vehicle Technology and Aviation Bill, which is an important Bill that we have to get right for the future. The benefits of connected and autonomous vehicles will be profound, but the set of changes is also profound. The Bill is in Committee now.

We are seeking to lower the risk by making progress in ensuring that people are better able to drive and, through that, they will pay less for their insurance premium. My hon. Friend the Member for Bexhill and Battle asked about the discount rate, which has to be considered in the pricing of insurance. I am aware that the recent change in the discount rate and the likely impact on the insurance industry were discussed in some depth in the evidence session last month. I am therefore keen to set out the Government’s reasons for the change and a number of actions being taken as a priority.

The Ministry of Justice leads on this issue, but let me explain: the discount rate is used to convert a compensation award made to an injured person for future losses into a present value lump sum payment, which reflects the return that the person could expect to earn if investing the lump sum today. Last month, the Lord Chancellor notified the market of a change in the discount rate from 2.5% to minus 0.75%. She made it clear that the decision was made in accordance with national law, given her legal duty to consider only the impact on injured parties. The decision was made following a Ministry of Justice public consultation in 2012, the report of an expert panel in 2015 and the responses of statutory consultees, Her Majesty’s Treasury and the Government Actuary. The review process has been lengthy and extremely thorough, reflecting the complexity of the subject matter and the importance that is placed on the decision.

We recognise that the change is likely to have an impact on the insurance industry, resulting in a knock-on effect on some consumers but I must stress that, under law, the Lord Chancellor cannot consider the impact on defendants such as the insurance industry, only the impact on the injured party. I also stress that any effect of the change in the discount rate on the cost of insurance premiums, including car insurance premiums for young drivers, is a matter for insurers to consider.