Car Insurance — [Philip Davies in the Chair]

Part of the debate – in Westminster Hall at 6:05 pm on 5 March 2018.

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Photo of Susan Elan Jones Susan Elan Jones Labour, Clwyd South 6:05, 5 March 2018

I beg to move,

That this House
has considered e-petition 207616 relating to changes to car insurance.

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

The petition asks for insurance to be based on the car itself, instead of on the individuals who drive it. The petition reads:

“In some countries, such as America and Portugal, insurance is based on vehicle itself instead of being based on the individual who drives it. This is an effective method for families and friends as they are able to share a car without paying for multiple insurances.”

The petition then gives as an example the following scenario:

“3 friends go on a night out in the same car, they all have driving licenses, but only one of them is insured on the car. 2 of them are under the influence of alcohol and incapable of driving, including the car owner. If the car was insured on itself, the sober friend could drive it legally. However, because each individual is insured on the car, no one would be able to drive it as it would be illegal.”

As of this morning, 56,200 people had signed the petition. On behalf of the House of Commons Petitions Committee, I thank Rita Rocha Vidrago, the creator of the petition, and all of its signatories. Observers of the work of the Petitions Committee—I hope there are many around—will note that that falls short of the 100,000-plus signatories that many of the petitions that our Committee schedules for debate receive. However, the number of signatories to this petition is still significant, especially as it proposes quite a specialist solution to a range of problems relating to car insurance. There are certainly enough issues relating to car insurance.

The issue raised specifically in the petition is the cost of car insurance, but there is also the related issue of drivers who drive while uninsured. I believe that the petition provides a serious attempt to deal with that critical issue—a problem that is a nightmare to all who have ever been in an accident involving an uninsured driver.

The Government have responded to the petition, with the Department for Transport stating:

“The Government has no plans to change the motor insurance system to require vehicles themselves, rather than the use of a vehicle, to be insured.”

The Government are pretty trenchant in their response—in fact, very trenchant:

“There are a variety of approaches to motor insurance taken around the world, and the UK Government is not alone in requiring the use of a vehicle to be insured.

The current motor insurance system of insuring individual drivers, rather than cars, does not prevent named drivers from being added to an insurance policy for shorter or longer periods of time. This allows for friends or relatives who share a car to be included on one insurance policy.

The price of insurance depends on a range of factors, including many which are specific to the person driving;
for example, driving history (whether the driver has had previous claims or unspent convictions for drink driving, for example), the use they make of the vehicle (for example, for commuting or business use), and their years of driving experience.

If insurers had to cover the vehicle itself and were not able to take driver-specific factors into account in their pricing, then the cost of insurance would likely rise for those with a good driving record and history of driving safely.”

That is the Government’s response, which I hope we will hear the Minister develop later.

That all begs the question: how much further in-depth consideration should we grant the petition? To my mind, there are three key issues in respect of motor vehicles and insurance. First, how does the proposal impact on the cost to the consumer purchasing the insurance? Secondly, does it help people in the unfortunate situation of being injured by another party? That relates specifically to individuals driving without insurance. While the guilty party may be punished through the law, that rarely helps the innocent party with their car repair costs. Finally, and vitally, does the policy help or hinder road safety? I will not go through those questions in sequence in this debate, but they are worthy of our consideration.

To move on to evidence-based research, the Association of British Insurers found that on average, young drivers spend about 10% of their salaries on insuring their cars. It is therefore clear that action needs to be taken to stem rising motor insurance premiums. Analysis by the Association of British Insurers shows that drivers aged between 18 and 21 are paying an average of £973 for comprehensive car cover. Rising motor insurance bills, resulting from a range of factors including the way that compensation payouts are calculated and a resurgence in whiplash-style claims, are hitting younger drivers hardest.

There have been many concerns about the car insurance industry, and the integrity of the market has been questioned. As a result of complaints about the sector, the Competition Commission investigated and concluded in 2013 that there were

“features of the UK market for motor insurance and related goods or services that, either alone or in combination, prevent, restrict or distort competition such that there are adverse effects on competition.”

A research paper by the House of Commons Library about the motor insurance industry notes that many people consider the UK car insurance market to be dysfunctional. The paper cites the unpredictable rise and fall of insurance premiums. The research also references the relationship between the industry and car hire, repair and legal claims firms, which some view with suspicion.

I understand the frustration of the petitioner and the many signatories at high car insurance premiums and what could be viewed as the inflexibility of the UK insurance market. A different system—one that means that if a car is insured, anyone with a valid driving licence can drive it—certainly seems to offer one solution to the UK’s sometimes complicated and expensive system, but let me consider that further.

The cost of insuring a car is calculated using a variety of factors. Driver-specific factors include the driver’s age and experience, their road safety history, where they use and keep the car, and how often they use it. Since December 2012, car insurance companies can no longer discriminate on the basis of gender. Factors that depend on the car itself include its power and value. Insurance companies seek to set premium rates such that total premium income at least matches the total amount paid out in claims. Under that system, the people deemed the least likely to have an accident and to claim on their insurance pay the least, while those considered at greatest risk of making an insurance claim pay the highest premiums.

If insurance followed the car, rather than the driver, key driver-specific factors used to calculate risks could not be used. That could mean that drivers with a history of driving safely would have to pay higher premiums. That would be likely, as insurance companies would be unable to recover the costs of paying out claims by charging the drivers at greatest risk. It could give rise to an unfair and expensive system that would not reward safe drivers at all.

The petition states that if insurance was on the car alone and was not driver-specific, friends and family would be able to share a car

“without paying for multiple insurances.”

In reality, is that not de facto the case under the current motor insurance system? Named drivers can be added to insurance policies, allowing more than one person to be insured to drive the same car. The main driver uses the car most frequently, while named drivers use it less—none the less, they can use it frequently. That great oracle beloved of so many, the price comparison website, has research showing that 35% of young drivers who are the main driver on their own insurance have a named driver on their insurance, thereby making their premiums up to 13% cheaper.

Car hire firms work on the basis that a car is insured such that anyone can use it. Many business fleets are insured on a similar basis. However, in both cases there will be a variety of restrictions. Hire cars are often only available to those over 25. While fleet operators have extensive bargaining power, there will still be restrictions: the person driving a business car will, for instance, usually have to be over a certain age and an employee of the firm.

Under some fully comprehensive driving insurance policies, one’s own insurance means that it is possible to drive someone else’s car—with their permission, naturally. However, restrictions are often placed on that type of benefit. When driving a car that is not one’s own, cover is often on a third-party basis, so insurance will pay only for damage to other vehicles or property. Another possible type of insurance is for temporary cover on another person’s vehicle.

The petition cites the USA and Portugal as countries with a motor insurance system that requires insurance only of the car and not the driver. Such a principle is out there, and it is good to examine, and sometimes to copy, effective working practices from other countries. I certainly believe that that is worth doing here; however, I strike a note of caution, because on closer inspection the motor insurance model in both those countries is more complicated than it first appears.

In the United States of America, liability insurance follows the driver and covers them when they drive a vehicle other than their own. All states apart from New Hampshire require at least liability insurance. Comprehensive and collision auto insurance are tied to the vehicle; however, if someone other than the insured drives a vehicle covered by comprehensive insurance and is not listed as a covered driver, they may not be covered in an accident.

In Portugal, the vehicle and not the individual is insured; however, vehicles are generally insured to be driven by specific categories of driver. For example, if a car were insured for a category of drivers aged over 45, a sober driver aged under 45 would not be eligible to drive it. In Portugal, it is possible to insure a car with comprehensive cover for any driver. In practice, however, the driver often has to be over 30. Research from the Library suggests that comprehensive cover can be harder to get in Portugal than in the UK.

Driving without insurance in the UK is illegal—and quite right, too. Even if our model of insurance changed, I have no doubt that driving without insurance would remain illegal. The police can give a fixed penalty of £300 and six penalty points to someone caught driving a vehicle that they are not insured to drive. If the case goes to court, the uninsured driver can be made to pay an unlimited fine and be disqualified from driving.

The police also have the power to seize and, in some cases, destroy the vehicle that is being driven uninsured. There is a strong case for that practice. It encourages safe driving and compensates innocent parties for any injuries or damage to their vehicles or property as a result of a motor accident.

Although I extol some aspects of the current system, the Government need to take action to deal with rapidly rising premiums. We are not short of journalists and researchers who have made that point. In 2015, James Delingpole of The Spectator expressed it thus:

“The car insurance industry is a disgusting racket. It’s designed so that as many industries as possible can get their snouts in the trough.”

That may be hyperbole, but there is a definite need for cartel-like issues—or at least, the perception of cartel-like issues—to be examined. Reform of the motor insurance sector is necessary. I have little doubt that high insurance premiums and the perceived unfairness of the sector are leading to demand for change.

The petition does not provide a silver-bullet solution, although it is worthy of discussion and contains some interesting ideas. However, even if the petition’s answer is not the very best on offer, the Government should look seriously at it and other suggestions, including introducing graduated driving licences, freezing the rate of insurance premium tax and implementing planned reforms to the way in which lower-value, whiplash-style claims are handled. It is abundantly clear that the status quo on motor insurance premiums is not an option, and on that the Government must act. I thank the petitioners for bringing the issue to this Chamber today.