Named Drivers on the increase – but at what cost to insurance companies?

According to the Association of British Insurers, the average annual expenditure on car insurance per household currently stands at £426. This figure would be much lower if it weren’t for young drivers, in fact drivers under the age of 25 are responsible for pushing this figure up by at least 50%. It is no wonder then, that there has been a noticeable increase in the number of named driver policies being issued over recent years, as youngsters struggle to afford their own cars and are forced to use their parent’s cars as a means of transport. Insurance companies will tell you that restricting the number of drivers on your policy can keep the costs down, especially if the additional drivers are young. Parents simply pay more by adding their child to their policy and the youngster dips out on the opportunity to build up a no claims bonus. As a general rule, motor insurers are highly sceptical when drivers wish to include their children on their policies as named drivers. Sometimes the aim may be to obtain insurance for young drivers at a lower premium than the young drivers could obtain themselves. However, many parents simply wish to allow the newly qualified driver to occasionally use the family car. For young drivers, especially those who have just passed their test, it is very tempting to add their names to their parent’s policy in an attempt to get a cheaper deal. But what about older siblings, with no ‘no claims’ of their own?! When Francis Cook of Maidenhead, Berks, got himself a new company car, it couldn’t have come at a better time for his 20 year old son Jason. Jason had been driving a B reg Ford Fiesta 1.1 since the age of 17 on his own insurance policy, paying around £650 a year for a 3rd party fire and theft policy. Jason, having crashed and written off his Fiesta, used the family car every now and then to get about now he didn’t have a car of his own. “Dads car was just sitting in the garage, hardly ever being used, so I offered to pay the insurance on it and drive it myself.” says Jason. Mr Cook was quoted an extra £70 by his insurers to add his son to the family car, a G reg Honda Prelude, making the total policy price £400. Five years on, Jason still drives the family car and remains on his dads’ policy, which he now pays just over £350 a year for. Jason offered to buy the Honda from his dad for its current market value (£1000), as he was planning on moving out of home. All he needed now was his own insurance policy, although he had no ‘no claims bonus’ Jason was now almost 26 years old, he figured that he could get a good price on his own policy. “I had a good look around and got a few quotes but the cheapest policy I could manage was over a thousand pounds, which is more than the actual value of the car!” Jason decided that he might as well continue to pay the £350 through his dads’ policy, even though he was now the main driver of the vehicle. “I expected to pay more for my own policy, as I obviously didn’t have any no claims bonus of my own. I didn’t expect to have to pay over a thousand pounds for my own policy, after all I had been on my dads’ policy for 5 years with out claiming and I’m almost 26.” “I am more than happy to forfeit any no claims bonus of my own, if it means paying less than a third of what it would cost for my own fully comprehensive policy.” Insurance companies are vulnerable to this kind of deception, as a lot of the time, instead of asking a prospective policyholder who the main car user will be, some insurers simply ask ‘Do you have access to another car?’ This question is less clear than it might appear. What does ‘access’ mean? If someone drives his dads car once a year, does he have access to that car? And does it make any difference if he lives nearby? If insurers require information about the number of cars in the family, they should ask that very simple question. A new ABI Statement requires insurers to ask ‘clear questions’ about ‘matters generally found to be material’ and this seems the simplest solution to an increasingly common problem. David Harlow of leading online insurance broker InsureYourMotor.com has also noticed a significant increase in the amount of named drivers appearing on policies; he comments: “Some insurers 'sting the family' by rating the family car as if there were no no-claims bonus. Where a family has two or more cars, some insurers may assume that the youngster is the main driver of, say, the third car, and whack up the premium. If they prang dad's car, his no-claims discount will fall through the floor.” According to Harlow, as long as youngsters build up some sort of no-claims bonus, the more driving experience they get, the narrower the gap between the premium on a policy in their own name and one where they are an additional driver. This will occur around age 25 for medium-performance vehicles and 30 on high-performance vehicles. Although, building up a full no-claims bonus of up to 65 per cent is unlikely, particularly for young men. Harlow continues, “Young male drivers represent the highest risk on UK roads. This is reflected in the premiums. Industry figures show that the cost of insurance for young male drivers can be more than 50 per cent higher than for females. The gap is particularly marked between the ages of 17 and 21.” “Once you are over 25, not only have premiums come down, but youngsters tend to insure vehicles in their own name anyway because they are more than likely not living at home. At this age, those with a clean claims record who were previously insured on their family's policy can usually get an introductory bonus by switching to another insurer and taking out insurance in their own right, InsureYourMotor offer discounts in the region of 40 per cent.”

Date - 16/12/2003