The Government has today announced that it is bringing together industry experts and consumer organisations in a taskforce to address the costs of motor insurance, calling it a major step forward in getting a fair deal for UK drivers by "rooting out the factors driving up costs for industry."
Collaborative approach
The new Labour administration sees a direct link between the availability of cost-effective motor insurance and its ambition to drive investment and growth into the UK economy. The taskforce is brought together by Transport Secretary, Louise Haigh and Economic Secretary to the Treasury, Tulip Siddiq and will focus on those the government has identified as hardest hit by rising costs, including ethnic minorities, those on lower incomes and elderly and young drivers. The taskforce includes consumer and industry trade organisations such as the Association of British Insurers (ABI), Citizens Advice, Which? and Compare the Market. Membership of the taskforce also extends to various government departments and industry regulators, including the Home Office, the Ministry of Justice, the Department for Business and Trade, the Department for Education, the Financial Conduct Authority (FCA) and the Competition and Markets Authority (CMA).
Root cause analysis
The newly formed working group is tasked to "identify the factors behind rapidly rising premiums and will agree solutions to keep costs under control." Factors specifically identified as driving up the cost of insurance include "inflation, rising car thefts and the country’s pothole-ridden roads…"
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Car insurance is an essential, not a luxury. It is vital to accessing economic opportunities and this government is committed to getting costs under control. That’s why we’re taking direct action to bring insurance companies and regulators round the table to discuss how we can crack down on spiralling costs. The rising cost of cover affects all drivers but some groups have been hit harder than others. No matter your background or circumstance, this government is determined to ensure drivers get a fair deal. Our new expert taskforce is a major step forward in delivering a fair deal for drivers. It will give this issue the attention it deserves – rooting out the factors driving up costs for industry and ensuring drivers are able to hit the road. Rt Hon Louise Haigh, MP, Secretary of State for Transport |
In addition to the Taskforce initiative, the FCA has announced a competition market study into the use of premium finance, to examine whether consumers who use credit to pay for motor insurance are accessing fair and competitive deals.
DAC Beachcroft says…
One must not lose sight of the starting point here. A period of stubbornly high inflation, ongoing challenges with the supply of parts, the repair of Battery Electric Vehicles (BEVs) and a negative Personal Injury Discount Rate (PIDR) in England & Wales are all contributing towards the cost of motor insurance. Motor insurers are not, in the main, making an underwriting profit.
On the issue of the PIDR there are signs of optimism, with the new rate set at 0.5% in Scotland and Northern Ireland. An early announcement of the new rate in England & Wales is likely to have a significant positive impact on the cost of claims.
Meanwhile, in the volume claims arena, inflation is eroding the benefits of the whiplash reforms, pushing innocuous minor injuries out of the Official Injury Claims (OIC) process and into a cost bearing regime. There is a strong case for raising the Small Claims Track limit, and indexing it to inflation.
DAC Beachcroft's Strategic Advisory Team and Policy Unit will be monitoring developments and will work closely with stakeholders and insurance clients to help bring down the costs associated with underwriting motor insurance, and deliver mutually beneficial outcomes for the industry as a whole. For further information, please contact the authors of this article.
