Cost of motor insurance

Response to Transport Committee report

11 March 2011

At a time when the cost of motoring is soaring, with the cost of unleaded petrol passing the £6 per gallon mark, drivers are looking to the insurance industry and Government to control insurance premium inflation – fuelled by spiralling claims costs.

For many, especially the young, the cost of car insurance is simply becoming unsustainable.

If the Committee's main recommendations are implemented the AA expects premium increases to come under better control.

Fraud and personal injury claims

Fraud, particularly false personal injury claims, is the biggest driver of premium increases but it is difficult for the police to commit time and effort to investigating fraudulent claims.

A special police unit, funded by insurers could very quickly pay for itself and will also make the work of the Insurance Fraud Bureau much more effective.

The Government's aim to allow insurers access to DVLA database information is also welcome.

  • Customers being economical with the truth when buying cover has led to an unacceptable number of claims being declined – this is usually when false information comes to light.
  • Yet insurers are still obliged by law to meet third-party costs even if the policy was fraudulently obtained. This is another major contributor to premium inflation.

Legal costs

AA Insurance agrees that reforms should be implemented to control the proliferation of accident management firms and personal injury lawyers whose costs often double the ultimate compensation award.

The recommended research to find ways of restraining personal injury claims is welcome too.

"Stopping cold-call and text message advertising and managing legal costs will help to control premium costs while a more transparent system will help people understand the relationship between these costs and rising insurance premiums," says Simon Douglas, Director of AA Insurance.

Uninsured drivers

Police enforcement has already reduced the number of uninsured drivers from around one in 20 to one in 25 – but it remains a significant cost borne by the insurance industry.

The introduction of CIE (Continuous Insurance Enforcement) will help but rising costs, especially amongst young drivers, could encourage many more to consider driving without cover, particularly after the European Court of Justice Gender Directive becomes effective.

Young drivers

The AA's call for driving to become part of the National Curriculum appears to be recognised, particularly 'pre-driving tests' for 14-16 year olds and replacement of the discredited Pass Plus initiative.

The AA is sponsoring a new BTEC qualification which helps to emphasise the responsibility that goes with driving a car.

The Committee said that there is a place for technology-based insurance solutions that track driving standards.

With the removal of gender as a rating factor, such systems could well come into their own and help to manage aggressive driving, especially amongst young male drivers.

AA Insurance is developing a car insurance package that uses smart technology that rewards responsible driving and highlights opportunities to help more aggressive drivers change their driving behaviour.