‘Insurance cap is not the answer’

Limiting motor premiums for 18 to 25 year olds would not solve the insurance woes of young drivers, a major insurer believes.

 

An online petition, which gained over 185,000 signatures, prompted Members of Parliament earlier this week to debate whether a £1,200 cap should be put on to young drivers’ insurance.

 

“We recognise these are challenging times for young drivers, but we don’t believe a cap is the answer, as this would likely result in unavailability of cover for young drivers as insurers withdraw from the market if the cap is below the expected cost of claims,” James Hillon, director of products at Co-op Insurance, told Insurance Business.

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Hillon further explained that if premiums are capped, young drivers would choose to insure “more powerful” vehicles, increasing the risk to them and their communities.

 

Hillon added that the proposed cap would also financially affect drivers from other age brackets.

 

“Any cap that was below the underlying cost of insurance would inevitably lead to cross-subsidy and therefore increased costs for all drivers,” Hillon said. “In other words, it’s likely that insurers will need to put up prices elsewhere to pay for the effect of the cap.”
 

To help lower motor premiums, Hillon is instead calling for more action on controlling claim costs and on making UK roads safer.

 

Co-op Insurance also believes that telematics could be part of the solution for young drivers impacted by rising insurance costs as a result of the Insurance Premium Tax hike and the personal injury discount rate.

 

“In the current climate, telematics policies could likely become more attractive to young drivers who are keen to keep their costs down,” Hillon said. “Indeed, ‘pay how you drive policies’ could be an ideal choice for young drivers who can prove they are safe and then benefit from reduced premiums as a result.”

 

Co-op Insurance said it has helped its young driver policyholders save over £11.8 million through the company’s telematics product, which aims to reward safer motorists.

 

“We are committed to supporting young drivers, and were the first mainstream insurer to launch a pay-how-you drive telematics product over six years ago,” Hillon told Insurance Business. “Through this our young drivers receive an average of £140 back in their pockets over the average policy lifetime.”

 

Co-op’s young driver policyholders, aged from 17 to 25, have clocked up over 820 million miles or 48 million hours of driving since the insurer launched the telematics policy back in March 2011.