Pumped up premiums: insuring teenage drivers
The scenario goes something like this: your delight at your offspring passing their driving test is rapidly followed by a wail of anguish as an online insurance quote for £6,000 appears on your computer screen.
Many parents would agree that it can seem like the insurance business has a vendetta against youngsters. However, the good news is there are a number of legal ways to cut insurance costs.
There's no doubt insurers regard a 17-year-old driver as a menace. Moneywise hit the comparison websites to find out exactly what kind of shock lies in store. We invented a 17-year-old young man living in south London, parking on the street and driving a new Citroen C1 city car.
Comparethemarket.com's best quote was an eye-watering £6,042 from Admiral. The most expensive was from Igo4value, which quoted a whopping £20,672. Switching to third-party insurance instead of fully comprehensive only shaved £1,000 off the quote.
We then stuck our motoring novice in rural north Wales to get the quote down, but the cheapest policy still came to £3,998. However, when we made our young man 19 instead of 17, although still inexperienced and without a no-claims bonus, the premium fell to £1,533.
Why are premiums so high?
"The reality is that the risk of youngsters being involved in an accident is high," says Malcolm Tarling, a spokesperson for the Association of British Insurers. "For example, eight out of 10 accidental deaths of men aged 15 to 19 occur on the road."
Overall, road crashes are the biggest killer of 15 to 24-year-olds in the UK. It has become such an issue that the University of Cardiff recently proposed banning young drivers from driving at night or carrying passengers of the same age.
In fact, casualties among young drivers have actually fallen sharply over the years. Official figures show that the number of 17-year-olds killed or seriously injured behind the wheel in 2009 was half the 1994 to 1998 average.
Despite this fall, in the past year average premiums for the under-30s have risen by a whopping 30%, according to the AA. This is because accidents involving youngsters are typically at high speeds and in less safety-conscious cars. Cars may also be more likely to be laden with friends – and that means more claims to pay.
One solution that is not recommended is the rather devious practice of 'fronting'. This where a parent is designated as the owner and primary driver of a vehicle, although it's really the child doing most of the driving. With the child down as a named driver on what is ostensibly mum's car, tempting savings can be made.
Roz Davidson from Kent took this route with her 18-year-old son, Harry. "At first, the bills weren't bad as we put Harry down as a named driver," she says. "But we saw a programme that said fronting wasn't a good idea. It can be easily spotted – if it's a third car, it's obviously not your own. So we decided he should have his own insurance – and the premium soared to £2,000."
The Financial Ombudsman Service – which judges insurance disputes – deals with between 100 and 200 fronting cases each year. It estimates that every year around 1,000 insurance claims aren't met because the relationship between a teenager and a car hasn't been properly described.
So how can you reduce premiums and still keep above board? One solution is to forfeit night driving. Insurance providers Young Marmalade and i-kube, both underwritten by Royal Sun Alliance, cut the cost of insurance by getting young drivers to agree not to drive at night and fitting an electronic gizmo to the car to make sure they don't.
Research by the Centre for Transport Studies at University College London in 2005 found that young male drivers between 17 and 20 are 17 times more at risk than all male drivers between the hours of 2am and 5am. The companies also require all new drivers to take the government-sanctioned post-test learning scheme, Pass Plus, which gives further practical tuition to new drivers.
Young Marmalade goes further by limiting the type of car its drivers use. It sells a mix of new and used cars through its website, but no car will be ranked less than four stars on the Euro NCAP crash test.
We put our fictitious south London driver through the company's quotation system – this time buying the Citroen C1 at a cost of £158 a month – and it came back with an insurance quote of £1,781. Not bad when the nearest quote online came to more than £6,000.
The company is also about to launch a 'black box' that can detect poor driving by assessing braking, acceleration and cornering speeds. Drive well and the monthly bill goes down; drive badly and it goes up.
Young Marmalade says it can shut the car down altogether if the driving is consistently bad. The box will also transmit details of a crash to speed up the claims process.
If you buy the car, however, the catch is that Young Marmalade will not pass on any discounts it receives from the car manufacturer. So whereas it sells a C1 at £8,295, Citroen sells the same car for £6,495. But if you're saving more than £4,000 on insurance, you're probably not going to mind.
However, with i-kube, there are fees to consider: the black box costs £249, plus £100 a year in operating fees, and if you quit the scheme before your deal is up, you'll be charged another £100.
There are other technological innovations on the horizon. The insurance industry's testing centre, dubbed Thatcham, is looking into a US idea called the Youth Key. Once thrust into the ignition, this restricts certain vehicle functions - for example, it limits the car's top speed and disables the stereo until the driver's seat belt is fastened.
Extra training used to be a way to lower insurance premiums. However, Pass Plus is falling out of favour with insurers, who aren't seeing a big enough fall in accident rates. Young Marmalade is on the cusp of introducing its own training scheme as Pass Plus is not as comprehensive as it would like.
In addition, there may be industry changes ahead. The British Insurance Brokers' Association (BIBA) is pressing the government to implement plans to help reduce the costs of motor insurance, particularly for young drivers. One key element of BIBA's plan is to 'signpost' young drivers to those websites offering competitive cover.
Then, of course, there are all the traditional ways more experienced drivers use to get quotes down. Shopping on the phone rather than online means it's much easier to ask what will help to lower the premiums, from limiting mileage or raising the voluntary excess (the amount the insurer will cut from the payout) to getting extra vehicle security. It's far easier to negotiate with a person than with a computer.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
Association of British Insurers
Established in 1985, the ABI is the trade body for UK insurance companies. It has more than 400 member companies that provide around 90% of domestic insurance services sold in the UK. The ABI speaks out on issues of common interest and acts as an advocate for high standards of customer service in the insurance industry. The ABI is funded by the subscriptions of member companies.