The price of motoring seems to be inexorably rising. Petrol prices are heading towards £1:30 a litre – diesel to £1:35. However, a change likely to be imposed by the European Court of Justice in the next few days could add considerably to the burden. The change is in the cost of insurance and the people who are expected to be hit the hardest could be women drivers.
This is potentially another example of the law of unintended consequences. The EU has been working hard to end discrimination to promote gender equality in particular. Until now, a degree of discrimination has been applied to motor and other insurance premiums. Insurance companies have looked at the statistics and seen that male drivers are more likely to have an accident than women.
But the Charter of Fundamental Rights, introduced in The Treaty of Lisbon two years ago, says that discrimination “on any ground” is illegal. The wording is very broad. It includes “sex, race, colour, ethnic or social origin, genetic features, language, religion or belief, political or any other opinion, membership of a national minority, property, birth, disability, age or sexual orientation”.
It prompted the European Court of Justice to look at the way British insurers in particular worked out their premiums. In September last year, Dr Juliane Kokott, one of its Advocates General, wrote that sex discrimination in underwriting insurance policies was incompatible with the Treaty. If the ECJ follows its usual practice, it will implement her recommendations.
What that means is that the court will almost certainly rule that calculating car insurance based on gender is illegal. Young men, who currently pay the most to insure their cars, will see their premiums drop. But young women, who currently get cheaper because they are considered a 'safer risk', could see their insurance bills rise by as much as £1,000 a year.
According to Simon Douglas, director of AA Insurance, “This will be particularly bad news for young women who are proven to present a much lower risk to insurers and at present, pay premiums that are up to 50 per cent cheaper than their male peers. I expect premiums to increase substantially for them, while they will probably fall a little for young men.”
The price comparison site, moneysupermarket.com, has come to the same conclusion. Its General Manager Motor, Steve Sweeney, argues that the ruling “will mark a fundamental and significant change in the UK insurance market. The move would be detrimental to UK consumers, and premiums for female drivers would most certainly increase further as a result.”
Both of these organisations have already been warning about the rate of inflation in the insurance market already. The AA’s index shows that car insurance premiums rose by an average of 6.4% in the final quarter of 2010. And moneysupermarket.com advised its clients that, throughout last year, motor insurance was rising by around 44p a day.
They’re worried that the combination of this record price inflation and the European ruling could lead to many motorists being forced off the road. Some may even be tempted to drive without any cover at all. The fear is that the insurance companies will increase their rates for women drivers to bring them into line with men, rather than reducing the costs for male drivers.
The choice of insurance open to young drivers is also being reduced. Third party, fire and theft cover, most commonly bought by them for older cars, is being offered by fewer and fewer companies and can now even be more expensive than comprehensive cover. And although comprehensive premiums have risen for everyone, young drivers have suffered the brunt of the increases.
According to the AA, the use of gender in calculating insurance risk has long been a “thorn in the EC's side”. It accepts that the concept is technically illegal, but points out that the UK has enjoyed the freedom to set its own conditions until now. “My fear is that the European Court of Justice will no longer tolerate such exceptions,” said Mr Douglas.
Some motorists may feel that the best solution is to cut back on car cover; one report says that 10% of UK drivers may do so, cutting perceived extras such as legal protection or courtesy cars from their policy and increasing their voluntary excess. But Allianz Insurance warns that this may not produce the expected savings because of what it describes as “scorpion insurance”.
Andy James, head of direct customer marketing, explained that “in many cases, these additional extras are automatically included in insurance packages, so customers don't even get to choose whether they want to pay for them or not.” He warns against taking out a policy with “a ‘Scorpion' insurer, i.e. there's a ‘sting in the tail'.
“For example, a policy may seem cheap, but there is a wide variation in the level of charges imposed by insurers for things like mid-term adjustments, cancellation fees and paying by direct debit. These can all make a policy much more expensive in the long-run.”
The sharp rises recorded by the AA’s Index prompted the House of Commons Transport Committee to launch an inquiry into the car insurance market. It heard that the increases have been fuelled by fraud, injury claims, exaggeration of claims and organised ‘cash for crash' scams, as well as uninsured driving and poor investment returns because of the recession.
The latest figures from the Association of British Insurers suggest that there are over 100 fraudulent motor insurance claims detected every day. Between them, they cost the industry over £430 million a year, which investigators believe is just the tip of the iceberg. Insurers estimate the cost of fraud at £80 for every honestly bought car insurance policy.
On 11 January this year, the Under-Secretary of State, Department for Transport, Mike Penning MP, told the Inquiry that from the 1st of April, what he called “continuous insurance enforcement” would become law and insurers would be given access to the DVLA database as part of the insurance application process later in the year.
This means that the police will have draconian new powers to tackle uninsured drivers. It will be an offence to keep an uninsured vehicle, rather than just to drive one. The DVLA and the Motor Insurers’ Bureau will send out warning letters. If no insurance is taken out, owners will have to pay a £100 fine and if no policy is purchased the car will be destroyed even if the fine has been paid.
Finally, many drivers will have spotted the “Don’t Take Drugs and Drive” signs on the overhead gantries on Scotland’s motorways. It’s part of a similar two-pronged offensive. Motorists convicted of driving, or attempting to drive, while under the influence of drugs could see the cost of their car insurance double.
A conviction could lead to more than a £1,000 fine, a 12-month driving ban, and even a possible prison sentence. Many such drivers may find they have difficulty insuring themselves in the future. Many insurers won't provide cover at all after a conviction.
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