The word from the ABI as they look to bring togther various stakeholders in the market, plus regulators and government agencies. Everyone knows the current situation, especially on certain EVs, plus younger drivers, cannot continue. The end result of price inflation on premiums to levels above £3000 a year will be more uninsured drivers on the roads of the UK as people reject the entire concept of any insurance cover, even if it means a conviction.
Two things which need urgent attention are the outdated Group systems, which place too much emphasis on engine size and performance and not enough on theft and associated PI risk from certain makes and models, plus the IPT taxation on consumers.
When something is mandatory by law and then taxed as if it’s a luxury choice, there is a fundamental breach of trust between State and individual. That greed, and other aspects of State greed like LEZ charges and road tolls, needs calling out by the industry. We all know that the amount raised in taxation from travel, fuel, parking, VED and IPT is huge by comparison to the amount actually invested in roads building or maintenance.
Those taxes on movement itself ALSO affect the processing of insurance claims and the industry needs to make that point – the agencies of regional governments and Councils are all helping fuel the rising cost of car insurance too.
Here’s the word;
The ABI has today unveiled a series of steps the industry is taking to combat the rising costs of motor cover. In collaboration with its Consumer Advisory Group, the ABI will commission research into the feasibility and impact of various social policies focused on helping low-income households manage their insurance costs.
Alongside this, it has published a roadmap outlining 10 concrete steps aimed at tackling insurance costs for all drivers. These steps are a combination of actions that industry, government or regulators could initiate or improve. These include making more data available for consumers to understand which vehicles are more expensive to insure, Graduated Drivers Licences to improve road safety, and the cutting of insurance premium tax (full list below).
These actions are announced in the lead up to the publication of the ABI’s wider financial inclusion strategy. This aims to help consumers better understand and access insurance, protection and long-term savings products, which are key to households’ financial resilience.
Members of the ABI are also committing to better explain how insurance premiums are calculated and the steps customers can take to reduce costs. This includes more detailed explanations at renewal, but also throughout the purchasing process. The ABI has also expanded its online guidance for all insurers and consumers to use.
While motor insurance is competitively priced the industry has set a clear focus to combat recent price spikes.
GENERAL INFLATION AND IPT
Price rises have been driven by claims cost inflation with EY estimating that in 2022 for every £1 paid in premiums, insurers incurred £1.11 in claims and expenses. They now estimate that this figure rose to £1.14 in 2023. The impact of price rises on consumers has been exacerbated by a fixed rate of insurance premium tax (12%) – introduced by the government in 1994 (at 2.5%), it has risen steeply since. IPT currently adds £67 to the average motor policy.
Premium Finance, which allows consumers to pay monthly instead of needing to pay in one go, is another focus for the ABI as part of its package of steps on motor insurance affordability. The ABI is in discussions with the FCA and members on possible industry action on premium finance and is also considering how it can work with finance houses and brokers that are outside the ABI umbrella and therefore not in scope of any industry measures.
Commenting on the actions, Mervyn Skeet, Director of General Insurance Policy said:
“We know that insurance costs are putting strain on household finances, so we’ve been working hard to find solutions. Some of these actions we can do quickly, others will require time or assistance from the regulator or government. Regardless, we will continue to do what we can under our new strategy to help consumers access the products that are integral to financial wellbeing and play a key role in the nation’s financial resilience.”
Beyond the affordability of motor insurance, the ABI’s financial inclusion strategy will cover the impact of ill health on financial security and ongoing work to ensure consumers get the right advice that they need to plan their financial lives. The strategy formalises action already taken by the ABI to bolster financial inclusion. The ABI previously partnered with Plain Numbers and then Fairer Finance to support firms in developing clearer communications. It also ran an advertising campaign – Dad comes home last summer aimed at explaining the role and workings of insurance and created a web hub of guidance and FAQs around motor cover. And it promotes engagement with pensions through its #PensionAttention campaign run in partnership with the Pensions and Lifetime Savings Association (PLSA).
ROADMAP FOR THE FUTURE
The ABI’s 10-Point Roadmap to tackling insurance costs
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- Help consumers make informed decisions. The industry will do more on transparency around which vehicles are more costly to insure. For example, increasing visibility of the Group Rating system (which rates vehicles on risk) should help consumers make more informed choices.
- Combat vehicle theft. The ABI is exploring a partnership with the police to aid in the recovery of stolen vehicles from ports. It’s also working with vehicle manufacturers, the Mayor of London’s office, and the National Police Chiefs’ Council to find more ways to prevent vehicle thefts.
- Tackle fraud and uninsured driving. Continuing to crack down on fraud and uninsured driving will reduce the costs borne by law-abiding drivers for their insurance.
- Improve road safety and road infrastructure. Through campaigns, modern safety measures and road improvement.
- Support new and novice drivers. Young and inexperienced drivers pose a greater risk to themselves and other road users. The phased approach of graduated driving licenses has been proven to improve safety.
- Reduce the impact of the Personal Injury Discount Rate (PIDR). The rate for large, severe injury compensation needs a rethink, as these costs filter back to premiums.
- Continue whiplash reform. Reform principles enacted for whiplash – which set reasonable compensation amounts and controlled the cost of injury claims – should be applied to similar injuries (bruised knees, sprained ankles etc).
- Advocate for safety-focused vehicle technology. Making assisted safety features mandatory in new cars would contribute to improved road safety. Beyond assisted systems, automated vehicles could revolutionise road safety but only if legislation ensures user and system safety.
- Lower Insurance Premium Tax (IPT). IPT adds £67 to the average policy. It’s getting worse as prices rise. It punishes responsible choices.
- Support the repair sector. Work with government, vehicle manufacturers and independent mechanics to create a robust repair sector that can fix a broader array of vehicles. This will increase competition and choice for customers.
See here for the full details of our roadmap.
INDUSTRY COMMENT;
Ian Hughes, Chief Executive of Consumer Intelligence says : “The ABI’s roadmap outlining 10 concrete steps aimed at tackling insurance costs for all drivers is very welcome.
“This is not just an issue for insurers and the insured. At Consumer Intelligence we have been talking to MPs and asking Ministers to support action with a particular focus on controlling insurance costs for drivers under-25 where we may need to see a scheme similar to Flood Re to make it possible for young drivers to access affordable insurance.
“In addition the recent research from Citizens Advice pointing to some areas of the market where risks are increasing rapidly also points to a real need for the Government and the FCA to take active measures to support access to affordable insurance.”
APIL INSIGHT
Mike Benner, chief executive of the Association of Personal Injury Lawyers (APIL) said:
“The personal injury discount rate applies to victims of the kind of nightmare crashes we all fear the most, who need vital compensation to meet their needs for the rest of their lives. If the insurance industry does not pay the full and fair compensation for which their customers are accountable, people with catastrophic injuries will have to turn to the State to fund their needs and their care or go without. The taxpayer should not have to bear this cost when the whole purpose of compulsory motor insurance is to take care of people, properly, when something goes wrong.
“The insurance industry persists in demonising victims of negligence to cover for their own business practices. Whiplash victims were already hit hard when compensation was slashed three years ago on the promise of lower premiums, which never happened. Now insurers are shamelessly turning their attention to the most severely injured road crash victims with life-changing injuries, who must not be burdened by the industry’s wider problems”.
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