Why is insurance for young drivers so high?
Hardly a week goes by without an article about young drivers and the plight they face trying to sit behind the wheel.
We are constantly reminded that statistics show 1 young driver in 5 has a bump or something more serious in their first year behind the wheel. But this statistic has been around for over 20 years, so that is not the reason why premiums for that sector increased out of all proportion at the back end of 2009.
The Driving Standards Agency is doing all it can to improve the levels of training but communicating with over 40,000 driving instructors is a mammoth task. A big step was taken with the introduction of Pass Plus but many insurance companies simply ignore this.Â Pass Plus may or may not influence the accident figures but, with a low take up, it will have little impact on the overall premiums. More changes to the learning to drive process are in the pipeline, following a massive consultation but these will take years to have a meaningful impact on premiums for new drivers (if indeed they ever will).
Go back just a few years and you will find the first part of the answer â€“ inertia or as now, a lack of inertia.
When a young driver went to an insurance company, that insurance company was relatively safe in the knowledge that the driver would stay with them for a few years. Perhaps it provided insurance for the parents, so the insurer could view the driving profile of the parent and make a reasonable assumption about the driving skill of their offspring.
Schemes would be concocted which would allow the insurer to spread the risk over a number of years of premium receipts. An example of this was no claim discounts for named drivers, which built up a financial benefit of following in parentsâ€™ footsteps.
Often the insurance company would know full well that Mummy insured a car with Sonny as a named driver but the car was really used by Sonny. The insurer would turn a blind eye to fronting and allow them to build up a little no claim discount as a named driver to encourage them to take that big step in their own name a few years later.Â Four young drivers out of five did not have a bump, so the insurers could cover their book by hanging on to the customer over a period of time.
Move forward a few years and the internet is thrown into the equation. Drivers can now go to the Confused Meer Kat in a Supermarket and get the best deal for them â€“ right here, right now. Nothing wrong with that, but loyalty has now gone through the windscreen. The insurer now has as little as one yearâ€™s premium to recover the risk profile for an individual driver, so it has to increase the price in an attempt to balance the books.
The second part of the answer is down to the growth in the compensation culture.
First time drivers are paying so much for insurance that they can only afford cheap cars and these cars do not have the modern controls needed in an emergency.Â The insurance company then faces claims for third party car hire, legal fees and Miss Whiplash dipping her sticky fingers in the honey pot, which have all led to a massive increase in the value of claims. The insurance company also has to consider the potential liability to a young driverâ€™s passengers in the event of a single vehicle incident.Â These tend to happen late at night through distraction or the inexperienced driver not picking up rapidly changing driving conditions.
If this is not enough, a further blip has recently appeared on radar. A number of insurance companies took advantage of non-domicile status to keep premiums down as this had an impact on the treatment of VAT on claim payments. Her Majestyâ€™s Revenue and Customs is now questioning this position and this has affected insurance companies, many of which specialise in the young driver sector.
It is a vicious circle and inexperienced drivers will continue to pay a higher price as the number of insurance companies left to look after that sector is diminishing. Some insurance companies have just upped the minimum age to 21 or in some cases 25 and others are likely to follow or, as in the case of non-doms, have simply pulled out of the market. Every young driver is tarnished with the same brush, regardless of their skill behind the wheel â€“ the insurer simply does not know if they are a good risk or not.
Parents can spend ages trawling the web to find that elusive low cost insurance premium. Premiums do move during the week depending upon the number of sales, so they may be lucky and make the enquiry just when the insurer is trying to reach a weekly target. More often than not it is a frustrating exercise and the exhausted parent feels like a hamster in a wheel â€“ getting nowhere, fast.
So how does a parent tackle this problem?
There are specialists in the young driver sector that manage the risks for the insurer. Some use technology to limit the times that a young driver can be behind the wheel, providing financial incentives to avoid driving at high risk times. Another specialist uses what Richard Hammond calls â€œa clever ideaâ€ to make much safer cars an affordable proposition. A combination of these factors creates a balance of safety and cost, which is often less than the cost of traditional insurance.
Others look to increase the training for young drivers but there is no proven end result to stop the insurance companies turning to a less risky sector of the market â€“ a well trained inexperienced driver is still an inexperienced driver. There is no substitute for claim free years under the belt to bring premiums down to sensible levels and the quicker the young driver can achieve that, the better.
Â© Nigel Lacy – co-founder of Young Marmalade