Friday, October 5, 2012

Wheels have come off UK car insurance

Prices, accidents and vandalism are all down, but deliberately bloated repair costs mean premiums keep going up

Vehicle theft and vandalism have plummeted, but insurers still whip up fears of car crime to jusitfy higher premiums. Photograph: Steve Allen/Alamy
The car insurance market is broken. As a country, we're paying around £10bn a year to insure our cars, and billions of that is wasted. According to the AA, drivers in Britain fork out an average of nearly £1,000 each to insure their cars, up from around £350 in 1994. Those figures include everyone from 17 upwards, which is why they seem so high – most middle-aged people pay closer to £500-£700. Yet it's evident that carinsurance has shot far ahead of inflation and earnings, despite the fact that (a) we're having fewer serious car accidents and fatalities almost year in, year out; (b) car crime has collapsed; and (c) car prices have fallen.
One of the fantastic things about Britain is how few people die on our roads – just 1,900 last year, with 23,000 serious injuries. In 1990, it was 5,217 dead and 60,000 more seriously injured, while in 1966, the worst year, we killed 7,985 people on the roads. In France, the figures are double ours.
Now let's look at car theft and vandalism. According to the ONS, the total recorded "offences against vehicles" soared in the 1980s, peaking in 1992 at 1.55m. Since then the fall has been astonishing, with just 417,000 offences against vehicles in 2011/12. Even as unemployment has climbed, theft and car crime has continued to fall. So while insurers whip up fear about car crime to justify costly premiums, in fact it's at the lowest level in a generation.
What about car prices? A new Ford Focus (£14,000+) costs a lot more than a Ford Cortina in 1980 (£3,475), but in real terms the price of cars has advanced little, if at all. Meanwhile the price of used cars has fallen, both in real and absolute terms. I called webuyanycar for a valuation on my only car, a 51-reg Alfa. It came in below £400 – less than I pay for the insurance on it.
How did we get to the situation where insurance can cost more than your car? The reality is that the part of the premium that goes to cover accidents and theft keeps falling. Instead we are paying for all the other nonsense now built into your premium – deliberately bloated repair costs, outrageously priced "courtesy" car hire, spurious whiplash claims and burgeoning uninsured losses.
The insurance industry wails about it, but is largely at fault itself. It is riddled with perverse incentives, because the person paying the bill often isn't the one managing the repair. If you knock another car, it goes off to their insurer's "authorised" repair yard, which, because it's charging your insurer, has no incentive to keep costs under control. Its incentive is the reverse – it will want to drag out the repair, add in costs and commissions, and offer a ludicrously expensive replacement car while the other one is off the road, and for as long as possible.
The Competition Commission has begun an investigation into the car insurance market, but don't hold your breath. We need a fundamental rethink. UK car insurance looks like US healthcare; super-loaded with costs, but with worse outcomes than countries with socialised medicine. Government, rightly, makes car insurance compulsory, but leaves profligate private providers to manage it. How about a National Car Insurance Service?

Source

No comments:

Post a Comment