Belfast Telegraph

Friday 29 August 2014

Car insurance premiums soar – and young drivers pay the price

Young drivers are being made scapegoats and priced out of the market by insurance companies desperate to counter the loss of premiums from disloyal customers, according to the findings an Independent on Sunday investigation.

The study found that soaring premiums for young motorists – one company quoted £9,000 for a 17-year-old – are not in line with prices quoted for the rest of the population which have also risen steeply.



The problem is such that the Office of Fair Trading (OFT) has decided to step in, announcing recently that it will launch an inquiry into the escalating price of car insurance.



Average premiums for comprehensive cover rose by over 40 per cent in the 12 months to March, according to the AA. Drivers, aged 17-22, are facing an even tougher time, paying 64 per cent more today – at a typical premium of £2,431. In reality, many young drivers are paying much more than even this.



Recent research from the Institute of Advanced Motorists (IAM), the road-safety charity, found that the cheapest insurance quote for an average 17-year-old driver was a colossal £7,091 a year, while at the top end the highest quote was £9,700.



"You often wonder if they just don't want the business. In the past you attracted young people so that they stayed with you for life, but now people change insurers all the time. It seems to me these companies don't want them," says Neil Greig, IAM's director of policy and research.



We are told repeatedly that younger drivers pay more because they cost more – they have more accidents than other drivers and these accidents are more likely to lead to expensive third-party claims from passengers. Insurers say an increase in fraud and a significant rise in the number of personal injury claims are also to blame for the rises.



Simon Douglas, the director of insurance at the AA, explains that price hikes are inevitable when companies are losing money. "By 2009 insurers were paying out £123 in claims for every £100 taken in premiums. As some insurers began to push up rates in response, people bought instead from those insurers that had not increased prices, causing them to write even higher volumes of loss-making business," he says. "This trend was fuelled by the growth of price-comparison sites, where typically half of customers buy the cheapest product they can get."



This alone cannot explain why premiums for young drivers have increased out of all proportion over the past few years, however, and Nigel Lacy, of specialist insurer Young Marmalade, says that the crux of the matter is one of customer loyalty.



Previously insurers could bank on a young driver staying with them for a few years, often because mum and dad were with the same company, giving them time to spread the risk. Today, however, firms are unable to rely on customers sticking around, making balancing the books difficult.



"Now everybody is so price conscious and are going straight to the comparison sites. It's purely price driven, so insurers have got to try to recover their potential risk for that particular segment within the year," Mr Lacy says.



The crucial question is how can car insurance be made more affordable and how can insurers be persuaded back into this area of the market?



There are signs that changes could be on the way in the shape of a new invention from Ford, introduced in the US in 2009 and on its way to Britain next year. The MyKey is a device which limits the top speed, ensures people are wearing seatbelts and even makes emergency calls after a crash. Nervous parents wanting more control over the way their offspring drive can pre-programme a master key to impose limits on the car, capping the top speed, using warning beeps at other speeds, setting a maximum audio volume and even muting the audio system if seatbelts aren't worn.



But whether the additional safety measures will actually be recognised by insurers is another question. Similar technology is in place already with telematics, or black-box technology, which monitors driving behaviour to calculate premiums. By supervising braking, acceleration, cornering, speed and the time of day the car is driven, companies can lower premiums to reward safe driving and increase costs for risky motorists.



The choice is limited to just a few providers, however, and there is little to suggest that many of the big insurers will follow. Back in 2006, Norwich Union (now Aviva) pioneered "pay as you drive" insurance, but scrapped the products after only two years because take-up was low and the boxes were too expensive to fit.



Today, to set its prices, Co-operative Insurance fits a "smartbox" in the cars of 17 to 25-year-olds, along with a driving dashboard so that young drivers can see for themselves how they are being rated. The annual premium starts from an average of £1,800, but responsible drivers receive a "safer driving discount" of up to 11 per cent.



Young Lewis Hamilton wannabes who break speed limits and take corners too sharply could see their premium jump by 15 per cent. Similar products are available from specialist providers such as Insure the Box.



Young Marmalade offers Intelligent Marmalade, starting from the premise that customers can access cheaper insurance, and then assess and adjust their own driving using data from a motion sensor fitted to the cars. Bad driving can result in premiums being raised (initially by £250, then by £500).



For careful drivers with low mileage who are happy to avoid peak periods, these policies may be a good option, but there is no guarantee they will always beat standard cover.



"They aren't an instant solution to the young-driver problem as they don't consistently undercut traditional policies, but they can definitely provide savings for some drivers," says Lee Griffin, from the comparison site Gocompare.com. "Each of the policies operates slightly differently, so you need to look at which one may suit your situation."



He adds: "Young-driver premiums vary so much between insurers and between drivers that it really is down to each individual. The best advice is to compare the different approaches to see if you can benefit from trying something different."



CHRIS LORD



School sports coach, aged 20



When Chris Lord passed his test early this year, he knew insurance wouldn't be cheap, but he wasn't prepared for the outrageous premiums quoted. "The cheapest I could find was for around £4,000, but then my Dad found out about Young Marmalade," he says.



Chris decided to sign up with the specialist insurer and had the 'Intelligent Marmalade' black box unit installed in March. He bought a new Polo through the firm as well and secured a far more affordable premium of around £2,500.



"I need a car," Chris says. "If I hadn't found a cheaper deal I would have had to find the £4,000. There were even some quotes of up to £10,000, but I would have been forced to pay it."



Although self-conscious at first that his driving was being monitored, Chris says he has quickly realised the benefits. It takes just a few minutes for him to go online and check the risk scores of his journeys – getting a green, amber or red mark, with the latter potentially being penalised with increased premiums.



"I prefer to be a safer driver ... now I'm more conscious of my speed, breaking too harshly, or taking corners," he says. "I'm watching the way I drive."



Independent on Sunday

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