Can’t have it both ways on car insurance

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Royd Lane

Ripponden

They say that a fool and their money are easily parted and, judging by Pauline Hawkins’ rant regarding car insurance premiums (Courer, March 29), it would seem that the same sentiment also applies to newspaper columnists and their ill-informed opinions.

Whilst Pauline’s expectation was clear (that car insurance premiums should be proportionate to the value of the vehicle being insured), so too were the deep flaws in the logic that had led her to that naive and unrealistic expectation.

Does driving a cheap car mean that you’re less likely to have an accident? Does it mean that the repair costs for other people’s cars and property will be less, or that injuries to passengers, pedestrians will be of a more minor nature? No, of course not. So why expect insurers to use the value of a car as a determinant for the insurance premium?

So, having debunked her initial expectation, let’s consider the other grievances aired in Pauline’s article: the high cost of insurance for young drivers and the year-on-year premium increases for drivers who haven’t made a claim. I share Pauline’s frustrations, but cannot agree with her conclusion that “grasping insurance companies” are the underlying cause. In my experience, having worked in the financial services sector for over 25 years, motor insurance is a notoriously challenging sector in which to operate and most insurers make very little profit directly from motor premium-income (hence their keenness to sell you lucrative add-ons, such as payment protection plans).

The real reason for high (and increasing) premiums is, of course, high (and increasing) cost of claims. Bogus personal injury claims, staged accidents and uninsured drivers (the very same that Pauline appears to look to excuse) all contribute to increased claim costs. The only real question here is whose premiums should the insurers increase? Those drivers who cause expensive claims (ie, the young), or spread cost across all drivers, including those who haven’t made a claim?

For most insurers, the answer lies somewhere in the middle. They take the stance that, yes, it’s right that those people that present the greatest risk should pay the highest premiums, but that it is also right that we, as a society, have a price to pay if we want to continue to allow unaccompanied, young adults (who by their very nature are inexperienced and the antitheses of risk-averse) to drive.

On balance, I think I agree with that approach, but there’s one thing for sure: we can’t have it both ways. We can’t demand more reasonable premiums for young drivers and, at the same time, bemoan our annual premium increase - addressing one grievance would almost certainly exacerbate the other.

Paul Donbavand