It's a rather blunt instrument and one by which I think Insurers have capitalised upon.
No one really can prove amongst the public whether there has been profiteering at the expense of youngsters and their long sufferring parents but I would place a pretty sure fire bet that Insurance Executives would have been remiss if they hadn't noticed a marketing opportunity when it stares them in the face.
So what are the answers? Perhaps a system that gave youngsters the benefit of the doubt until such time as they had a negative claims experience. Rewarding them faster by reducing premiums based on claims free experience at an accelerated rate.Love to hear other inventive ideas and a progressive attitude from Insurers.
Hi Backfoot,
A good post - although, as always, I have to stick my comments in here!
I have to disagree with the comment about insurance companies profiteering at the expense of youngsters. As we debated a few months ago (separate thread), we established that the insurance companies pay out a hell of a lot more due to young drivers (Ref: Andy Leadbetter Research shows that every day Britain's roads witness four fatalities or serious injuries as a result of accidents involving young people. It is estimated that the country's 18-year-olds alone cause 50 collisions a day - that's more than three times as many as drivers in their 50s). The ABI statistics speak for themselves (as posted previously).
There is a marketing opportunity with the young driver's market, but this is actually to the opposite that you suggest. Insurance companies do not charge extortionate and non proportionate premiums, and there are lots of companies out there trying to compete with each other in this particular field. 4youngdrivers, Endsleigh, Provident, Capricorn amongst many more.
I'm not too sure how a system giving youngsters the benefit of the doubt would work? If all young drivers were given smaller premiums until they forced a claim payout, then the industry would turn on it's head and the more experienced drivers would face a massive increase to pay for the claims that the young drivers caused.. due to the lack of reserve from the small premiums reflecting the bigger risk. Insurance companies must budget for reserves and to satisfy the FSA that they have adequate Reinsurance measures in place to cover the excess risks they take on. If Company X has a budget of £25,000,000 in GPW and writes this due to change of underwriting allowing big risks to be written at smaller premiums, then the net profits would actually be in the red due to the inevitable massive claims payouts. The insurer would find it difficult to purchase Reinsurance as the whole idea is nonsensical and everybody would be at an abolsute and certain loss.
There are so many factors surrounding insurance that many people on here don't even realise. It's even been suggested that medical expenses is irrelevant! Absurd! As I have stated in another thread, the damages awarded to somebody of a younger age is far greater than to those of an older age. With reference to: "Insurance costs were never ever so prohibitive": this is because the cost of living has never been so high. Medical bills are through the roof, costs of repair have increased, value of goods has always been on the up.. many more etc. It is vitally important that everybody understands the UK economy and it's knock on effect; unfortunately insurance takes the brunt of it. As per Andy, if there are four fatalities a DAY caused by young drivers, the compensation is large. Furthermore, four serious injuries would probably lead to even larger compensations due to the long term care of the injured party and the possibility of a bright future that the injured party could have enjoyed. It's not uncommon for a fatal accident to be settled at less than £1,000,000 but damages awarded for serious injuries leading into several millions of pounds. If you do the maths, it's not hard to realise how important it is for everybody to be charged a premium the way they are today.
Back to the subject at hand, unfortunately the key point is 'Education'. An absolute fortune is spent on road safety measures but, to the young, this is overlooked. If they were that bothered about Education, they would have stayed on at University, bypassed driving like a muppet in a high powered bright green neon'd RS weapon that they lack experience in driving, and maybe they may have ended up with a decent job with a nice little (classy) sports car at the age of 25. The bottom line is young drivers cause insurers to pay out a hell of a lot in damages; both to third party property and injury claims. If every insurer refused cover to those under 21/25 then the entire customer base would reap extensively reduced premiums. The only way that everybody is going to enjoy lower premiums is by raising driving ages to minimum of 21 (or 25 if you want massive reductions). It won't happen anytime soon, but the figures are there. 18-21 year olds (especially male) are bad moral hazards, driving bad physical hazards who are, ultimately, a bad risk. If there were only a minority then there wouldn't be as big an issue. It isn't only a minority, it's a majority and therefore we all pay for it.
Finally, may I refer the readers to the following thread which could open everybody's eyes to the very basic understanding RE: premium calculations and how, in fact, the insurance companies are NOT using young drivers to make up profits! http://www.moneysupermarket.com/community/forums/post/faqs-how-insurance-is-worked-out-general-insuranc-79717.aspx
I must stress how fundamentally important it is that everybody is adquately insured by presenting an accurate risk which will provide you with an accurate premium to reflect. A dishonest representation of risk is just as bad as an uninsured risk. Both cost the insurance industry billions which must be collected from somewhere... us all .
Kind Regards,
Vicissitude