Do you think car insurance is expensive for young people?

dacouch

Rosemary7391 wrote: »

Are there any figures available for the amounts paid out due to claims on young drivers' insurance policies? I'm just getting lots of sites wanting to sell insurance when I look for them. Seems like this would be very useful information in this debate...

Insurers don't share their own data with other Insurers, however there is this from Admiral http://www.telegraph.co.uk/finance/personalfinance/insurance/7202668/Teenagers-twice-as-likely-to-have-road-accident-than-others.html

dacouch

Joe_Horner wrote: »

As almillar suggested, a policy which gives benefit of the doubt but penalises claims heavily could not only minimise the impact on other premiums but also actively encourage more careful and good defensive driving.

As a suggested outline:

• Third party only cover.
  
• Earns normal NCD for if / when you move on from the scheme to the open insurance market.
  
• No restriction on the car insured - it makes little difference if you hit someone using a Suzuki Swift or a Ferrari and, if you don't hit them then it makes even less difference what you didn't hit them in.
  
• Policy lasts for one year or until first claim. So, you crash, you have to take out a new policy.
  
• Minimum, standardised, premium for those with zero claims - let's say £250 for arguments sake - regardless of lack of history.
  
• Policy expires and premium trebles on first claim. So, if you have a fault (full OR partial) accident you have to pay £750 (using above example) - on top of the cost of repairing / replacing your own car - to continue for another year.
  
• Eligibility is removed after second claim so you have to take your chances on the open market and will be facing premiums the same or higher as now.

The type of car has a huge impact on the amount and value of claims. To say third party claims from a Renault Clio and a Volvo or even a Ferrari for a young driver are the same irrespective of the vehicle is wrong.

With regard to the policy expiring after the first claim.

A) This will encourage young drivers to deny responsibility for an accident or just ignore their Insurer hoping it will go away and / or to prolong their cover. This has a massive impact on how much the Insurer pays out to the third party.

It will encourage YD to drive away from an accident rather than stay and give their details in the hope it the parked car's owner etc does not get their details

Your subsequent post that TPO cover would be more appealing to Insurers as the claims would be much less than Comp claims. That's not really the case in the majority of YD as many YD will not claim for their own damage due to their excess.

However the main reason is the claims against YD are mainly for third party damage / injury. Young drivers tend to produce TP claims that are more expensive for TP property damage but when it comes to injury claims (Mainly due to them being far more likely to have passengers in the car and the passengers being young) produce much much more expensive injury claims.

onomatopoeia99

Andybez38 wrote: »

I think car insurance has always been expensive for young drivers. I passed my test in 1988 and paid about £600 then. In today's money that would be well over £1100 now. Don't make it cheaper for younger drivers and expect to make older/experienced drivers foot the bill.

I passed my test in 1987 (I was 17) and bought my first car in 1988. It was an 1800cc Morris Marina that cost me £500. I paid £280 to insure it TPF&T, the first policy I held in my own right. The insurance cost was about what I earned in three weeks on the "18 year old trainee" rate at my workplace (I was working full time in my "year off" before university).

I am not very up on what working teenagers get paid nowadays, but is insurance for a newly qualified driver the equivalent to what an 18 year old might earn in three weeks? I suspect not, given some of the figures being talked about.

To answer the questions in the opening post:

1. Insurance is expensive for newly qualified drives. Prohibitively so in many cases. I'm partly at a loss as to why as insurers had mountains of actuarial data 30 years ago when I was learning, so it's difficult to argue that they are more aware of the risks. I don't believe the exessive charges made by claims management companies and credit hire are helping the situation though.

2. The main effect is the inability to run a car. The effect is negligible in central London as everywhere is within a short walk of a tube station and public transport is excellent (parliamentarians seem unaware that this is not the case in the rest of the country when they suggest public transport as a viable alternative tothe motor vehicle). Outside of big cities, the effect can be to dramatically reduce employment opportunities, as if an employer is inaccessible other than by car, because there's a bus one way Wednesday and it comes back on Friday (I lived in a village where that was the total of the bus service), and the potential employee can't run a car, then they can't work.

3. Whatever the insurance industry is doing, it isn't working. Insurance is a curious beast. The government mandates in statute that it must be purchased to use a car else a criminal offence is committed, then does not provide a mechanism to purchase it, but leaves it to the open market, thereby creating an underclass that is priced out of something they are obliged to purchase to run a car.
Insurers should be compelled to break down the premiums they quote into the portions that make up:

Third party
Fire
Theft
Fully Comprehensive

(and any other add ons people may request). At the moment you get the insurance part as a lump, then other things like guaranteed hire car shown separately. Further, the government should legislate to stop them charging different amounts for each risk depending on what other risks are covered (so ending the practice of charging more for TP only vs comprehensive).

There should not be a cap on premiums, but since insurance is mandatory there should be a great deal more transparency in how they are calculated, and government should legislate to enforce this. It would make comparisons much easier.

forgotmyname

Andybez38 wrote: »

I think car insurance has always been expensive for young drivers. I passed my test in 1988 and paid about £600 then. In today's money that would be well over £1100 now. Don't make it cheaper for younger drivers and expect to make older/experienced drivers foot the bill.

I paid £800 for a 1300cc car, it was a sporty one though, which is about half the BHP of a modern 1300cc car. (1989 i think)

Imagine the insurers face when i wanted a 3.5L V8 when i was 20....

Rosemary7391

dacouch wrote: »

Insurers don't share their own data with other Insurers, however there is this from Admiral http://www.telegraph.co.uk/finance/personalfinance/insurance/7202668/Teenagers-twice-as-likely-to-have-road-accident-than-others.html

Thanks, that's interesting. That seems to indicate that 17/18 year olds are around twice as likely to have an accident, and those accidents cost twice as much, compared to the rest of the drivers. So one might expect their insurance to cost 4 times as much.

This link suggests that average insurance is around £600:
http://www.bbc.co.uk/news/business-23474426

So £2400 as a ballpark figure for a very young driver does seem reasonable based on that. Whether car insurance is too expensive in general is a different question, but the relative costs do seem to be justified.

Perhaps we should focus more on teaching young drivers how they can reduce their risk - works for everyone, fewer accidents and lower insurance premiums.

Joe_Horner

dacouch wrote: »

Insurers don't share their own data with other Insurers, however there is this from Admiral http://www.telegraph.co.uk/finance/personalfinance/insurance/7202668/Teenagers-twice-as-likely-to-have-road-accident-than-others.html

A curious point in that report:

1 in 10 17 & 18 year olds have had an accident.
Average cost of claim for that age group is £3500. Since these are figures from financial experts one would assume that's the total average costs (including their admin etc)
They don't give a figure but, reading around, it seems that a typical insurance premium for that age group is around £1500.

So, for every 10 policies they collect £15000 and pay out £3500. That's hardly the wafer thin margins they'd have us all believe they're operating under.

Even if the claim cost doesn't include admin and the admin costs twice as much as the claim, that's still about £10k total costs for £15k premiums taken, which is a profit margin most businesses could only dream of. And that's at the supposedly unprofitable end of the business.

Perhaps it's not surprising they don't like sharing their data! As onomatopoeia says, a whole lot more transparency is long overdue given the compulsory nature of the product.

Rosemary7391

Joe_Horner wrote: »

A curious point in that report:

1 in 10 17 & 18 year olds have had an accident.
Average cost of claim for that age group is £3500. Since these are figures from financial experts one would assume that's the total average costs (including their admin etc)
They don't give a figure but, reading around, it seems that a typical insurance premium for that age group is around £1500.

So, for every 10 policies they collect £15000 and pay out £3500. That's hardly the wafer thin margins they'd have us all believe they're operating under.

Even if the claim cost doesn't include admin and the admin costs twice as much as the claim, that's still about £10k total costs for £15k premiums taken, which is a profit margin most businesses could only dream of. And that's at the supposedly unprofitable end of the business.

Perhaps it's not surprising they don't like sharing their data! As onomatopoeia says, a whole lot more transparency is long overdue given the compulsory nature of the product.

Some might have multiple accidents though?

Joe_Horner

dacouch wrote: »

The type of car has a huge impact on the amount and value of claims. To say third party claims from a Renault Clio and a Volvo or even a Ferrari for a young driver are the same irrespective of the vehicle is wrong.

In the absence of easily obtainable actuarial figures I'll have to take your word on that but with an average cost of claim in that segment of the market of £3.5k (as per your link) and a "minimum value" of accidents (as per my partner's recent parking scrape and the cost of claim recorded for renewal - actually stated by the insurers as the minimum figure they put) of £1k - it suggests that the vast majority of accidents involving youngsters are of a relatively trivial nature and in those sorts of accidents, the car you're driving really doesn't make much difference.

dacouch wrote: »

With regard to the policy expiring after the first claim.

A) This will encourage young drivers to deny responsibility for an accident or just ignore their Insurer hoping it will go away and / or to prolong their cover. This has a massive impact on how much the Insurer pays out to the third party.

Youngsters - in fact, drivers of all ages - tend to deny responsibility anyway. The other guy almost always "came out of nowhere" or was "impossible to avoid", or the ice on the road couldn't have been predicted (despite taking 10 minutes to clear their screen that morning).

So no real difference there then.

The solution to them "ignoring the insurers" is simple - if they do that the claim is paid and they lose access to the scheme. As would apply already to any driver of any age who refuses to cooperate with their insurer when an incident is reported.

dacouch wrote: »

It will encourage YD to drive away from an accident rather than stay and give their details in the hope it the parked car's owner etc does not get their details

Again, drivers of all ages already do this anyway because doing the right thing is going to hit their renewal.

Failing to report becomes automatic removal from the scheme, so the incentive changes to being more economic to report it, at least on the first incident, in order to retain the benefit of the scheme.

dacouch wrote: »

Your subsequent post that TPO cover would be more appealing to Insurers as the claims would be much less than Comp claims. That's not really the case in the majority of YD as many YD will not claim for their own damage due to their excess.

But any reduction in the risk insurers are exposed to is a reduction - even if it is small. If they really are working on the tiny margins they imply in this sector (see my reservations on that in other post) then basic professional competence would require that they remove exposure to every element of risk possible in order to remain profitable. The fact they don't do that raises questions in itself.

dacouch wrote: »

However the main reason is the claims against YD are mainly for third party damage / injury. Young drivers tend to produce TP claims that are more expensive for TP property damage but when it comes to injury claims (Mainly due to them being far more likely to have passengers in the car and the passengers being young) produce much much more expensive injury claims.

The figure quoted by Admiral in your link of £3.5k average per claim strongly suggests that's not really the case.

Youngsters may well have more than their fair share of big, nasty, expensive claims but insurance is an averages game just like any other form of gambling and the averages say the vast majority of youngsters' accidents are minor.

Otherwise that average claim cost would be considerably higher - virtually any injury with permanent effects will exceed that total claim on its own, even ignoring any damage to property etc.

Joe_Horner

Rosemary7391 wrote: »

Some might have multiple accidents though?

Yes they might, but I've been extremely generous to the insurers in allowing 2x claim in costs. As I mentioned, one could expect that "cost of claim" quoted by an insurer would actually already include associated costs - it's pretty sloppy / unprofessional costing otherwise.

Which means that they'd be in the same position of around 33% profit on premiums average if every one of those 1 in 10 drivers had 3 accidents each. Somehow that seems unlikely.

dacouch

Joe_Horner wrote: »

A curious point in that report:

1 in 10 17 & 18 year olds have had an accident.
Average cost of claim for that age group is £3500. Since these are figures from financial experts one would assume that's the total average costs (including their admin etc)
They don't give a figure but, reading around, it seems that a typical insurance premium for that age group is around £1500.

So, for every 10 policies they collect £15000 and pay out £3500. That's hardly the wafer thin margins they'd have us all believe they're operating under.

Even if the claim cost doesn't include admin and the admin costs twice as much as the claim, that's still about £10k total costs for £15k premiums taken, which is a profit margin most businesses could only dream of. And that's at the supposedly unprofitable end of the business.

Perhaps it's not surprising they don't like sharing their data! As onomatopoeia says, a whole lot more transparency is long overdue given the compulsory nature of the product.

If you can find the actual report from Admiral it makes more sense as the newspaper report have cherry picked information.

It's worth bearing in mind that

A) Admiral are the most profitable motor insurer, unlike most motor Insurers, they consistently show a profit on motor Insurance.

Admiral are the best Insurer at utilising the data & IT at their disposal to cherry pick the best risks

C) The report is solely about Admiral's own research up until 2010 and does not necessarily reflect the rest of the market

D) I very much doubt Admiral's average premium would be £1500 for a 17 or 18 year old as for that age group they tend to sell 10 month policies and also lower risk vehicles. I would estimate their average premium for this group would be circa £850

E) They do not give what data they captured but it's likely to include windscreen claims which would be circa £300 each and may also include accidents that have been reported but not proceeded with as the young driver realised it was not financially viable

I did mention that the Telegraph have cherry picked data from the actual report. The Admiral report quoted that 13% of 17 & 18 years olds had an accident in a one year period. That's 1 in 7.5 which changes the figures dramatically.

What the important data in the report is the the claims ratio for older drivers in any one year. Only 1 in 50 drivers over 50 have an accident in any one year period and their average claims cost is over 50% less than the young drivers claims.

DO NOT FORGET THAT THE SURVEY IS ONLY FROM ADMIRAL AND REFLECTS THEIR EXPERIENCE OF THEIR OWN CLIENTS. IT DOES NOT REFLECT OTHER INSURERS EXPERIENCE