Car Insurance

Matt Rodda Excerpts

Monday 5th March 2018 Westminster Hall

[Matt Rodda (Reading East) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Davies.

I congratulate the Petitions Committee on bringing this matter forward for debate and the hon. Members who have spoken tonight, particularly my hon. Friends the Members for Clwyd South (Susan Elan Jones) and for Darlington (Jenny Chapman), and the hon. Member for Kilmarnock and Loudoun (Alan Brown). I found it particularly moving when my hon. Friend the Member for Darlington mentioned what sadly happened to her constituents, and my heart goes out to them.

Although the petition focuses on one area of reform in the insurance industry, it gives us the opportunity to discuss many other important issues in respect of the high price of car insurance, especially for young people. It is worth pointing out that, while wages have stagnated, the cost of living has increased and premiums for young people have continued to soar. We have heard tonight that analysis by the Association of British Insurers shows that 10% of the average salary of drivers aged between 18 and 21 is now being used to pay their motor insurance bills, which come to an average of £973 for comprehensive cover. That is obviously quite a sum, equating to five times the average premium for all drivers, and it is indeed a significant weight on young people.

The current UK insurance enforcement mechanisms are based on checking that each vehicle is covered by insurance, and insurance is priced according to the risk of a claim, as perceived by the insurance company. Factors that affect this risk include the age and gender of the driver, the type of vehicle and where the vehicle is usually kept or used. The petition seeks to limit the impact of the first of those factors, and it would significantly benefit younger and older drivers.

Of course, there are examples of where the car and not the person is insured. Hire car firms work on that basis, as do many business fleets. Therefore, the argument could be made that the change being proposed would just be an extension of something that is already in existence under English law. However, it is worth noting that both hire car firms and business fleets are frequently restricted to drivers over a certain age, and there is the possibility that if we moved to a car-based scheme to give cheaper insurance to young people, they could be denied insurance completely due to the same sort of age filter being applied. Where insurers could not enforce an age ban, they would certainly continue to set premium rates, such that total income matches total claims. That could result in the people who make the fewest claims paying more for their insurance than the people who make the most claims.

As my hon. Friend the Member for Clwyd South mentioned in her speech, the current system allows insurers to offer a customer a tailored premium to meet their individual needs. If the car rather than the individual was insured, insurers would not have the information to assess the risk of the likely driver and could not underwrite that risk based on the driver’s profile. Also, vehicle technology is changing at a rapid pace, particular models are changing and the features of vehicles vary greatly. That makes the risk profile and relevance of a driver’s experience even more significant.

A change to a car-based model of insurance would mean a redesign of all the systems that car insurers currently use to assess risk and calculate quotes. It is fair to say that that could be a complex, lengthy and costly exercise. My worry would be that any costs incurred by the insurer would be passed on to the customer.

The reality is that there is no one solution to the issue of high premiums for young drivers, however much one might be sympathetic to the problems they face. The insurance industry will always come back to the point that statistically young drivers are, sadly, more likely to be involved in motor accidents than drivers over the age of 25. That issue needs to be tackled from a road safety perspective, which is why many of us feel that there needs to be a Green Paper from the Government on the issue of young drivers and safety.

Indeed, in March 2013 the Department for Transport released a press release that stated:

“Government to overhaul young driver rules in bid to improve safety and cut insurance costs.”

It also said:

“Green paper on improving the safety and reducing risks to young drivers launched.”

It is now 2018—five years later—and we are still waiting to see that Green Paper. Despite calls from road safety campaigners and the insurance industry, the Government no longer appear to be addressing the issue. As far as I am aware, there is no sign of a Green Paper on young drivers at the moment, although I would be very grateful if the Minister could update us. If the Government are serious about doing something to address the core issues affecting the cost of car insurance for young people, they would bring forward this work. I ask the Minister when he is thinking of doing that. If he is not considering doing so, why not?

A Green Paper could look at a number of areas. Telematics, or in-car black boxes, have been hugely successful in bringing down the cost of premiums. They enable insurers to assess real-time data on an individual driver’s behaviour and to charge more accurate risk-based premiums as a result—in some cases, new drivers can see their premiums fall by one fifth or more. Currently, black boxes are subject to VAT, which pushes up the cost for insurers and drivers. Given that the evidence shows that the technology can help to reduce the number of road accidents, surely the question is whether it would be appropriate for the VAT to be removed.

The Green Paper could also address graduated licensing, which the Association of British Insurers believes would have a positive impact. As we have heard, that involves considering how and when individuals can drive after passing their test and it is in operation in some overseas jurisdictions, including Canada. There could be restrictions on the time of day a young driver could drive or on the number of passengers they could have. In countries where graduated licensing has been implemented, it has been proven to lower death and accident rates among young drivers. That is a significant point, as I hope all Members here tonight will concur.

However, such a scheme raises a number of concerns. For example, would it lead to unreasonable curfews on young drivers? What if it led to a young driver being forbidden to travel at night when they could be required to start work early in the morning? The wrong sort of graduated scheme could restrict opportunities and be unfair as a result. I have given only a couple of examples because I am conscious of time, but a Green Paper could explore many other areas that could improve safety for young drivers.

I also want to raise road safety targets. Other parts of the world, and many international bodies of which we are part, back such targets and feel that they should be supported widely. The last Labour Government brought in road safety targets before, sadly, they were abolished by the coalition Government. Road safety targets play an important role in focusing minds and contribute indirectly, as a result, to a fall in the number of young people killed or seriously injured and recorded as road casualty statistics. I am afraid that we are seeing a worrying rise in the number of people who are seriously injured or killed on the roads, with Government figures showing a 4% increase on the previous year in the numbers killed in 2016—the highest level since 2011—and an 8.5% increase in the numbers killed or seriously injured. I wonder, therefore, whether the Minister will consider reintroducing those targets.

This has been a constructive and important debate, and important and thoughtful points have been made by Members from across the House. I do not believe that the proposal in the petition would be the best way to tackle high insurance premiums for young people, for the reasons I have covered. There is no silver bullet, I am afraid. It is time we had a Green Paper on young drivers, so that the Government could have a detailed, rounded, comprehensive look at the matter. It is also time to bring back road safety targets and allow ourselves a longer-term vision of a much safer and, as a result, much better road network, with the numbers killed or injured reduced. Other countries have piloted a zero vision and there is no reason why we should not have such a vision. Road safety targets would be a vital component in achieving that.