BIBA written evidence to the Petitions Committee on the proposal to put a maximum of £1,200 on car insurance for 18-25 year olds
British Insurance Brokers’ Association (BIBA) agrees that the cost of motor insurance is high for young drivers...
Insurance operates a system of risk based pricing – where the premium reflects the risk of the client. With young drivers there is a far higher frequency and severity of claims being made (than for other age groups), backed up by insurer claims statistics. The Association of British Insurers advise that 17-20 year old male drivers are nearly ten times more likely to be killed or seriously injured on the roads than more experienced drivers and the crash risk for young drivers rises threefold when carrying three or more passengers.
Young drivers make up just 12% of licence holders but they are involved in 25% of road deaths and serious accidents, which tend to be more expensive in terms of claims. Ultimately the increased risk means that young drivers between the ages of 17-20 are twice as likely to make an insurance claim as other drivers and, on average, their claim costs will be three times higher.
The proposal for Government intervention in pricing (by capping the premium at £1,200) is not one that BIBA supports. Risk based pricing acts as a risk management tool, ensuring drivers are incentivised to take care to drive safely and within the law and are rewarded with lower premiums. Also, the real cost of young driver claims would have to be passed on to other motorists through increased pricing, which is not fair and is against the system of risk based pricing.
Currently, as drivers reach different age bands they begin to benefit from lower risk pricing. This means that every driver ends up paying for the same age related factors over time.
However, there are a number of ideas BIBA would like to propose that could help reduce the insurance cost for young drivers while at the same time improve safety and also save money in the long run for the Government.
Instead of a cap, BIBA would like to propose an eight point plan to enable young drivers to access more affordable motor insurance:
1. For Government to reduce the rate of insurance premium tax (IPT) to zero for young drivers using telematics based policies, acting as an incentive for greater take-up of these policies which deliver significantly improved road safety results, leading to lower premiums.
Studies from BIBA brokers show that for new young drivers, telematics policies can halve a drivers risk of crashing in the first year. Others results show safety increasing three fold in their first 6 months since passing their test.
It is BIBA’s view that applying a zero rate of IPT is a win for everyone, it would make roads safer by moderating young driver behaviour, provide cheaper premiums for young drivers and be cost neutral for Government.
We also believe the doubling of insurance premium tax from 6% to 12% in the last 18 months has a significant effect on young driver premiums increasing the average tax they pay for a £1,500 policy from £90 to £180.
2. Improvements to the driving test should include learnings from speed awareness courses, to ensure new drivers are safer before they venture on to the road after passing their test, resulting in fewer incidents in the months after the examination which would lead to cheaper premiums. This is supported by Northumbria Police.
3. For greater promotion of safety measures in vehicles utilising advanced driver assistance systems (ADAS) technology including autonomous emergency braking (these result in a lower vehicle rating group for the car and therefore lower insurance premiums).
4. For the forthcoming new Single Financial Guidance body (that will replace the Money Advice Service) to utilise the BIBA Find-A-Broker service in order to match young drivers with specialist young driver brokers giving discounts for various risk management features including dash-cams and telematics.
5. For greater promotion and recognition, VAT breaks and even sponsorship of post-test advanced driving courses for young drivers, that are now more beneficial than the old pass plus system.
6. For Government to implement the necessary legal and regulatory reforms to reduce the £2billion cost of whiplash claims as per the Prison and Courts bill.
7. For Government to consider the disproportionate affect that a reduction in the discount rate for catastrophic injury claims would have on insurance premiums for young drivers and change the model.
8. To implement all 26 recommendations of the Insurance Fraud taskforce.
Further details on these eight points:
1. For Government to reduce the rate of insurance premium tax (IPT) for young drivers using telematics based policies to zero, acting as an incentive for greater take-up of these policies which deliver significant improved road safety results and result in lower premiums.
1.1 Young drivers can take greater control over their own premiums by considering a ‘pay as you drive‘ telematics policy. There are three main types of telematics policy:
- A mileage based policy – where the premium is calculated according to mileage.
- A time based policy effectively with a curfew because the cost of driving at night is much more expensive than during the day and this is tracked by the device.
- A driving behaviour/ lifestyle type policy, where many elements are considered in the rating – speed, acceleration, braking force, mileage even familiarity with route.
1.2 The barriers to telematics policies are reducing. The cost to buy and fit the box are much lower than when initially launched and the Insurance provider usually picks up these costs.
Drivers (and the parents of young drivers) consider the telematics box more of a positive ‘co-pilot’, than a negative ‘spy in the car’, as the ability to check your driving by looking at a ‘driving dashboard’ on-line or via a mobile phone ‘app’ informs them of the results of their driving, providing great feedback to encourage improved driving.
1.3 BIBA conducts annual research into the number of telematics policies live in the UK and in 2016 the number exceeded three quarters of a million for the first time as of December 2016 . BIBA member ingenie, advises that telematics insurance makes a huge difference to the safety of a young driver, particularly when coupled with effective feedback and education for the driver, they advise that telematics is a better option financially, and drivers are willing to drive more safely to reduce crashes, so much so that Telematics policies can offer savings of up to 25% for careful drivers. Data provided by the ‘black-box’ technology builds a personalised risk profile based on an individual’s actual driving. Ongoing monitoring of driving behaviours encourages better, safer road use. Research from insurance provider ingenie shows that telematics-based feedback can halve a driver’s risk of crashing during their first policy year.
1.4 In addition, BIBA member Marmalade, specialists in telematics insurance for young drivers, has seen exceptionally strong safety results. Studies show that one in five young drivers have an accident within the first six months of passing their test. Yet with Marmalade that figure significantly improves to only 1 in 16, making their young drivers three times safer (based on Marmalade policies incepted April 2015 – March 2016. 1 in 16 Marmalade drivers have an accident within six months of their policy start date, compared with one in five young drivers who have an accident in the first six months after passing their test, according to National Statistics).
1.5 Insurance premium tax (IPT) forms a significant part of the motor insurance premium – and is set to increase to 12% in June 2017. We believe that removing IPT from telematics based insurance for young drivers would encourage the take up of this type of policy which, in turn, because of the accident reduction effect, improves road safety. The ‘Making Road Safety Pay’ report from Ageas, Ingenie and the Road Safety Foundation calculated that this change would be cost neutral to Government during five years due to the reduction in the number of serious accidents, but massively increases road safety.
1.6 The business case from January 2016 states: “Removing IPT on telematics products would increase take up and promote safer driving among young people. It would reduce the number of serious road crashes – which cost the economy an average £400,000 each according to the Department for Transport. As IPT is due to be levied at 12% for motor insurance policies and the average telematics policy costs around £1,000 per annum, research shows scrapping IPT for under 25s would be cost neutral over seven years resulting in safer roads and cheaper motor premiums for young drivers at no cost to Government. This is a modern solution that is available now for the Government to implement. BIBA and Ageas strongly believe this is the right course of action.”
1.7 In our 2017 Manifesto BIBA calls on Government to remove IPT from these policies, this step would help meet the Department for Transport road safety statement of December 2015 which stated that “telematics offered a potential blueprint for a new targeted casualty reduction initiative.”
1.8 BIBA’s view is shared by Francois Xavier-Boisseau, CEO of motor insurer Ageas Insurance, who advises “Young drivers in the UK are far too likely to be killed or seriously injured on our roads and pose a significant danger to other road users. Increasing the uptake of telematics by the under 25s would help to encourage and incentivise them to drive more safely. If the Government removed insurance premium tax for telematics products it could boost demand and is a clear, simple action that could be implemented quickly.”
1.9 It is BIBA’s view that telematics policies are a win for everyone, applying a zero rate of IPT would make roads safer, provide cheaper premiums for young drivers and ultimately provide savings for Government.
2009 – 12,000 live policies
2010 – 35,000 live policies
2011 – 100,000 live policies
2012 – 180,000 live policies
2013 – 296,000 live policies
2015 – 323,000 live policies
2016 – 455,000 live policies
2017 – 751,000 live policies
2. Improvements to the driving test, including the learnings from speed awareness courses to actually be provided within the driving test to ensure new drivers are safer before they pass their test and venture on to the road, resulting in fewer incidents in the months after the examination also leading which would lead to cheaper premiums.
2.1 BIBA responded to the Government consultation ‘DVSA Improving the car driving test’ which asked for comments on the proposal to increase the independent driving section in the test from 10 to 20 minutes.
2.2 BIBA’s response was that increasing the driving element gives the instructor more time to observe behaviours; however, the classroom element of the test should be a very important part of the process of learning to drive.
Results from Northumbria Police prove that classroom training for speed awareness courses improves awareness of road safety issues, with 78% of drivers who attended saying they are more likely to keep to the speed limit and 91% learning something new.
2.3 96% said these courses should be offered to more drivers to make roads safer. BIBA and its Motor Panel, which includes AA Insurance Services, the organisation with enormous experience of providing driver education courses on behalf of the Police as well as driving schools, believe improving access to road safety education will dramatically improve the preparedness and ultimate safety of young drivers. These drivers are currently the highest risk element of the driving community, with more than five times the propensity to be involved in an accident than an over 35-year-old driver.
2.4 Therefore, BIBA believes that the learning provided in these types of courses should be provided to learner drivers to help prevent speeding, therefore reducing the number of accidents on the roads. The driving test provides an obvious opportunity for this to be monitored. Insurance premiums are risk based, therefore young drivers often have the highest premiums because of their increased incident rate and the severity of these incidents is much higher. Another benefit of this approach may be lower insurance premiums for this age group as a result of their improved risk profile.
2.5 Fewer accidents will mean the risk profile of young drivers would lessen, enabling the insurance industry to reflect this in its terms and premiums.
3. For greater promotion of safety measures in vehicles including autonomous emergency braking (these result in a lower vehicle rating group for the car and lower insurance premiums based on the vehicle).
3.1 Thatcham research describe Autonomous Emergency Braking (AEB) as a safety technology that takes into account the traffic conditions ahead and will automatically brake the car if the driver fails to respond to the conditions. It is probably the most significant development in car safety since the seat belt and could save 1,100 lives and 122,860 casualties in the UK over the next ten years. So, rather than protect the driver using the seatbelt and airbag in a crash situation, AEB aims to prevent the crash in the first place.
3.2 BIBA believes this is one of the most significant safety developments in motoring. Research shows that 75% of all collisions occur at speeds of less than 25mph in so called ‘City’ driving environments. AEB leads to a 38% reduction in real-world rear-end crashes’ concluded a 2015 study by Euro NCAP and Australasian NCAP. Third party injury claims on the Golf VII (with AEB) were 45% lower than its equivalent in analysis of UK insurance data. Cars fitted with AEB as standard can benefit from an insurance vehicle group that is 3 or 4 groups lower, leading to cheaper premiums.
3.3 ADAS safety measures include Lane assist, which warns the driver if they drift over the lane markings on a road (often when they lose concentration). Parking assist helps to prevent low speed parking incidents often involving pedestrians. Greater promotion and affordability of these systems would reduce the risk for new and inexperienced drivers and ultimately lead to lower premiums.
4. For the forthcoming new single financial guidance body (that will replace the Money Advice Service) to the Find-A-Broker service to match young drivers with brokers that specialist young driver brokers or with telematics brokers or brokers that give discounts for various risk management features including dashcams.
4.1 Young drivers may simply try a comparison site or their bank when seeking their insurance, however as per the Government’s response to this petition, BIBA would like to remind Government of our Find-A-Broker service, which can match young drivers to many relevant products from specialist brokers or with brokers with telematics solutions as well as brokers that give discounts for various risk management features including dashcams. Our response to HM Treasury’s recent consultation on the ‘Public Financial Guidance Review: consultation on a single body’ offers BIBA’s assistance in utilising our Find-A-Broker service to assist young drivers accessing insurance.
5. For greater promotion and recognition, VAT breaks and even sponsorship of post-test advanced driving courses for young drivers.
5.1 There are numerous post-test advanced driving courses – pass plus being one that is probably the most recognised. However pass plus is no longer considered particularly successful.
5.2 More modern interactive courses exist that extend road safety techniques to the driver, by providing vital information on accident avoidance while in the car. This enables drivers to learn techniques to safely deal with potential accident situations that may occur. For example, organisations like Ultimate Car Control offer courses to young drivers as well as fleet drivers, these only use advanced driving instructors and deliver the knowledge in a way which provides strong retention values to the student. Many employees are required to take these courses and benefit greatly from them. If Government was to give greater promotion to these safety themed courses along with any form of VAT break, they would be more affordable for young drivers and increased participation would increase road safety and reduce premiums. These courses are also far more appealing to young drivers then a pass plus course.
6. For Government to implement the necessary legal and regulatory reforms to reduce the £2billion cost of whiplash claims.
6.1 Despite the fact that during the last 15 years road traffic accidents have reduced by 39%, personal injury claims (largely whiplash) have increased by 90%. These are fuelled by over 720 million nuisance calls and texts in the last year alone. There was also a 150% increase in aged claims more than 300 days old since 2011. Also, in France three percent of personal injury claims caused by a motor claim are whiplash claims, however in the UK an incredible 80% of these are whiplash claims. It is estimated by Government that if their 2015 Autumn statement reforms in this area were implemented they would reduce customers premiums by an average of £43 and insurers like Aviva have pledged to pass on 100% of the savings.
6.2 This is why BIBA is calling for:
- Government to bring forward the necessary legislation to begin the new regime of Financial Conduct Authority regulation of claims management companies as soon as possible.
- Government to restrict the period that claims can be brought in from three years to one year, this would allow people who are genuinely injured to make claims, while reducing the ability of ‘claims farmers’ to trawl for business.
- To cap the amount payable for whiplash claims from occupants of a car
- To increase the small claims track limit to £5,000 for the occupants of a motor vehicle.
7. For Government to consider the disproportionate affect that a reduction in the discount rate for catastrophic injury claims would have on insurance premiums for young drivers
7.1 The Discount Rate is used in calculating settlements in catastrophic personal injury claims to ensure that the claimant is neither over nor under compensated.
7.2 The Discount Rate is applied by insurers to make a settlement based on an allowance for the return that a claimant might expect to receive if a lump sum compensation award is invested prudently. Government index-linked gilts are used to determine the rate applied.
7.3 The Discount Rate was set at 2.5% in 2001 and has not been revised despite change in economic conditions, reduced interest rates and despite two Government consultations on the matter.
7.4 The Ministry of Justice (MOJ) recently announced a review and expects to announce the new rate by the end of February 2017. The Association of British Insurers (ABI) sought to bring a Judicial Review, calling on a the Government to complete its consultation before announcing the new rate, but this proved to be unsuccessful and the ABI were refused a right of appeal.
7.5 There is much speculation as to how much the revised Discount Rate will be reduced by, with some observers even suggesting that a negative discount rate is justified taking into account the changes in investment returns, tax rates and inflation since 2001.
7.6 Any reduction in the rate will result in higher claims awards and therefore have a significant impact on insurers’ balance sheets, with some suggestion that it will cost the insurance industry billions of pounds.
7.7 This will, inevitably, mean significant premium increases in motor and liability insurance classes, particularly in sectors such as young drivers and commercial motor.
7.8 Many insurers have been strengthening their reserves and seeking more capital, however some commentators suggest that this has the possibility to see insurers exiting the insurance the motor and liability markets where they are unable to deal with the impact of any change in the Discount Rate. BIBA call for avoidance of any significant changes to the discount rate.
8. On 26th May 2016 a statement regarding the Insurance Fraud task Force from the Economic Secretary to the Treasury announced the Government accepts each of the recommendations addressed to it. These recommendations included:
- Government to review ways in which fraudulent late claims can be discouraged through changes to court costs and evidence rules such as;
- directing older claims to the small claims process not the fast track process,
- reducing recoverable costs by 50% if an injury claim is notified late, and
- Introducing a damages award range for soft tissue injuries.
- Demanding that the Solicitor’s’ Regulation Authority (SRA) be tougher on fraud by working with the Claims Management Companies’ (CMC) regulator to properly and strongly enforce referral fee bans. In addition, to ensure that organisations not currently regulated are brought into the regime.
- The Taskforce also calls on Government to develop and deliver a coherent regulatory strategy to clamp down nuisance calls and texts to reduce the number of honest customers being coerced into making spurious claims.
8.1 Due to financial constraints on Government, their ability to implement the recommendations has been hampered and therefore we call on Government to direct resources to this important initiative which will benefit consumers and young drivers please see Annex A for recommendations.
We hope you find our eight recommendations helpful, we believe that if they were all implemented UK roads would be significantly safer and also young drivers would benefit from significantly cheaper premiums.
Graeme Trudgill FCII
List of Taskforce recommendations
1 To improve consumer understanding of insurance products, the insurance industry should
ï be more mindful of policy and other documentation following the FCA discussion paper on ‘Smarter Consumer Communications’. Good practice on this topic should be coordinated by the ABI ï increase promotion of the CII’s 'Made Simple' service
ï roll out the ABI and BIBA’s ‘Code of Good Practice’ to help insurers and insurance brokers recognise and help potentially vulnerable customers1
2 To ensure anti-fraud messaging is targeted and hard-hitting
ï The ABI, IFB and IFED should oversee the development of a long-term, crossindustry public communications strategy. This should include increased promotion of IFB’s ‘Cheatline’, highlighting the impact of fraud on honest policyholders, use of the media and trusted intermediaries and communication channels outside of the insurance industry.
ï The ABI and CII should commission research on behavioural economics. The research should be available to all and the ABI should encourage take up of the conclusions through its voluntary best practice guidance
3 The insurance industry should strive to improve the quality and quantity of data available in fraud databases and data sharing schemes, including by
ï following the standard definition of insurance fraud produced by the ABI and the ABI should encourage members to participate in its annual fraud statistics benchmarking exercise
ï ensuring that the data available is accurate. Insurance Database Services Limited (IDSL) should allow the public to check their own claims histories through CUE free of charge, and challenge inaccurate records. There should be a free and accessible checking and appeal process for all databases used in the application and claims processes
ï increasing membership of existing anti-fraud scheme and databases including MyLicence and CUE
4 In light of forthcoming EU regulations,2 the ICO should provide the insurance industry and others with clear guidance on data sharing practices in relation to insurance fraud
5 The ABI should develop and promote voluntary ‘best practice’ guidance based on what the most effective firms are doing to tackle fraud, including a short ‘checklist’ on measures all insurers can take to improve their counter fraud defence
6 Insurers should ensure Board level ownership of counter fraud activity 1 Accessed January 2016; https://www.abi.org.uk/News/News-releases/2016/01/ABI-and-BIBA-launch-industry-Code-of-Good-Practice-to-helpvulnerable-customers 2 General Data Protection Regulation (GDPR) 78
7 The ABI should consider how it resources its counter fraud activity and whether more priority should be given to this task
8 The ABI should discourage the inappropriate use of pre-medical offers
9 The insurance industry as a whole should consider following the established good practice of some insurers in defending court proceedings where they believe the claim is fraudulent
10 The government should review how fraudulent late claims can be discouraged through changes to court, cost and evidence rules considering options including
ï recent claims (e.g. within 6 months) proceeding as normal through the fast track, but older claims being dealt with in the small claims track (SCT)
ï reducing recoverable costs by 50% if a minor personal injury claim is notified six months after the accident
ï introducing a system of predictable damages for soft tissue injuries
ï introducing a rebuttable evidential presumption that no injury was suffered where claims are lodged after a specified period of time has elapsed since the alleged accident3
11 The insurance industry should remain vigilant to emerging fraud and should coordinate its engagement with government through the ABI
12 The insurance industry should support the development work needed to evolve the IFB into a holistic intelligence hub and ensure timely contribution to the evolved dataset
13 The Claims Portal Limited should give IFB access to Claims Portal data
14 The government should
ï consider strengthening the fining powers of the SRA for fraudulent or corrupt activity
ï consider reviewing the standard of proof used in cases put before the Solicitors Disciplinary Tribunal 15 The SRA should take a tougher approach to combatting fraud including by
ï making clear that it will give an appropriate focus to combating financial crime through its existing powers, including naming and shaming
ï considering requiring solicitors to undertake client identification checks in cases other than just those where they handle client money
ï working with the CMR Unit to enforce the referral fee ban
16 Insurers should provide the SRA with evidence regarding claimant law firms suspected of insurance fraud and the SRA should investigate and act robustly. The IFB should act as a single point of contact between insurers and the SRA
17 In implementing the whiplash reforms outlined at Autumn Statement 2015, the government should consult on introducing a mandatory requirement for referral sources to be included on CNFs and claims should only proceed where CNFs are complete. 3 For example if a soft tissue injury claim was made over 1 year from when the accident occurred it is to be presumed that no injury was suffered unless the claimant can provide contemporary evidence such as GP notes or A&E visit, or time off work 79 Insurers should share data with the SRA and CMR if they suspect claimant representatives of breaching the referral fee ban
18 The ABI, in conjunction with the IFB, should produce guidance to its members setting out what forms of direct contact is acceptable with the alleged claimant if they suspect that legal representatives are acting without instruction
19 Claimant and defendant representatives (APIL, MASS, FOIL and ABI) should produce a standard letter in conjunction with the SRA and IFB for insurers to send to claimants directly to verify whether they have instructed a firm to represent them
20 The government should establish a stronger regime for CMC regulation and ensure that it has adequate resources and powers to do its job effectively. In particular the regulator should
ï effectively police the referral fee ban
ï prevent the use of "phoenix" companies
ï consider how to deal with those organisations providing claims management services outside the regulated sector
ï liaise with the ICO regarding the abuse of data protection rules
ï maintain a robust regime to ensure those regulated are run by fit and proper persons 21 The government should
ï develop and deliver a coherent regulatory strategy to tackle nuisance calls that encourage fraudulent personal injury or other claims, in partnership with the CMR, IFB, ICO, ABI, Ofcom and SRA
ï put the ICO’s Direct Marketing Guidance on a statutory footing 22 The ICO should
ï work with regulators operating in countries where nuisance calls are commonly sourced to tackle nuisance calls internationally
ï coordinate a communications strategy to inform consumers what giving consent to use of their data means in practice
23 The government should consider introducing a fixed recoverable costs regime for noise induced hearing loss (NIHL) claims The Taskforce endorses and supports the CJC’s investigation into how a fixed recoverable costs regime for NIHL cases (and perhaps other similar cases) might work, and how the handling of NIHL claims might be improved by both claimant and defendant representatives (including how evidence is obtained and presented), and recommends that this work should include consideration of quality standards and/or other thresholds for medical evidence
24 Aggregators should establish the use of existing fraud databases and data sharing schemes on a consistent basis in order to improve the industry’s ability to detect fraud at the point of quote 80
25 Aggregators should proactively engage with insurers and come to a collective data sharing agreement to tackle insurance fraud in order to detect suspicious consumer behaviour at the point of quote. This initiative should be coordinated by the IFB
26 The government should establish a legacy vehicle to ensure that Taskforce recommendations are implemented The legacy vehicle should continue the effective dialogue between different stakeholders regarding insurance fraud and should be made up of industry representatives similar to that of the Taskforce. It should review progress against these recommendations and fraud developments generally and should report to government once a year initially for 3 years. It should produce an annual report to government on progress and areas that need to be improved.
Visit us here: