Spotlight on the cost of car insurance for young drivers
Recent news in the press suggests that drivers are set to see their premiums increase again... A major factor in this is a recent change to what’s known as the “Ogden Rate”.
In simple terms the Ogden Rate (also known as a discount rate) relates to the pay-out for those involved in serious, life changing accidents – essentially the money they will get to cover ongoing care for the rest of their life. Previously, insurers were able to apply a discount of 2.5% to the amount, which takes into account the interest that would be earned – so that amount, with the interest, would cover the ongoing care.
This rate hasn’t changed since 2001, however, now the Ministry of Justice have decided to change this discount figure to -0.75% meaning insurers will have to pay significantly more in the event of these claims, and as a result the cost of everyone’s car insurance premiums increases again. It’s good news for those with serious injuries needing the care, but bad news for drivers’ pockets when the cost of running and insuring a motor is at its all-time high anyway…
We have tried to minimise the impact of this change for our customers, and continue to look at ways to innovate and provide affordable products for young drivers.
There are other reasons premiums are going up too
Last year IPT (insurance premium tax) was increased from 9.5% to 10% due to the rise in fraudulent claims and insurance scams, and as of June IPT is set to go up again to 12%. Currently a 17-year-old pays on average £2083* for a year’s insurance and the fact that the discount rate is changing and insurance companies now have to pay out even more – again, young drivers will likely be the ones hit the hardest!
What does the future look like for young drivers?
The cost of young drivers’ insurance is on the government’s agenda
The good news is that the government conducted a debate yesterday following a petition from a young driver to cap the cost of car insurance for young drivers to £1,200. And whilst such a cap may not be feasible – it highlights that the government are taking the topic of the cost of insurance and young drivers’ safety very seriously.
Recognised as being an active ambassador for young drivers, we were invited to present evidence to MP’s at the House of Commons prior to the debate. We presented our feedback as to what more could be done to help making getting on the road more affordable for young drivers. We won’t share the full 3000 word document – the key points we raised included:
- Preventing accidents by promoting safer driving through increased use of telematics for young drivers, and encouraging them into safer cars – which is proven to reduce the risk.
1 in 5 young drivers will be involved in an accident in the first 6 months of passing their test, with Marmalade’s New Driver Insurance, this reduces to 1 in 16 in the first 6 months of their policy – meaning they are 3 times safer with our black box policy.
- Campaigning for a reduction in IPT, or removal of IPT completely, for young drivers who use telematics.
- Encouraging the government to regularly review the driving test and look at ways to improve driver safety, as well as research what we can learn from other countries in terms of young driver safety – without compromising their independence and freedom.
- Encouraging telematics insurers to work together more to innovate and share best practice in order to improve outcomes for young drivers, and to drive down costs.
The Ogden Rate is under review
The government have promised to review the way that this rate is calculated following a backlash from the industry – so we’ll have to watch this space as to whether any further changes may come that may lessen the impact on motorists’ pockets…
There are ways you can cut the cost of your insurance
We know it’s tough for young drivers and we agree that all of these changes to the industry could make it harder for young people to get onto the road, and more importantly, be able to afford to stay on the road, so we will continue to stand up for young drivers where we can! In the meantime, you can try and keep costs more affordable by:
- Choosing black box insurance – which is proven to reduce accidents, and offers safe driving discounts at renewal.
- Choosing a newer car, over a banger, as they are considered cheaper to insure and lower risk because they have better safety features
- Looking at short term insurance options, if you only need a car occasionally
- If you can’t afford your own car, look at getting insured on your parents’ car instead
Above all, drive responsibly and safely because if we all work together to reduce the number of accidents, the amount paid out in claims comes down, and in turn, the cost of insurance should come down too.
*according to confused.com car insurance price index