Government’s plan to reverse EU Vnuk law – risky or ‘positive development’ for insurance?

The insurance industry has given mixed responses to the UK government’s plan to scrap the European Union’s (EU) Vnuk law for motor vehicles other than cars and motorbikes.

The Vnuk law requires vehicles such as e-scooters and ride-on lawn mowers to have insurance, even on private land. This also applies to vehicles that did not previously need insurance, for example golf buggies and quad bikes.

Although the move may benefit policyholders by saving them an average of £50 annually in their insurance premiums, some argue that this decision does not address the risk involved for these vehicles.

Alistair Kinley, BLM’s director of policy and government affairs, told Insurance Times: “The Department of Transport (DfT) decision to reverse the Vnuk case will, when it takes effect, mean that non-standard vehicles and use of all vehicles on private land will not have to be covered under compulsory motor insurance.

“But the prospect of accidents in those settings hasn’t changed, so it would still be sensible to look for voluntary insurance for any risky activities involving vehicles in either of those settings.”

This follows the UK leaving the EU officially on 31 January 2021. This means that the UK does not need to comply with the EU specific Vnuk law anymore. 

The government conceded that if this law remained applicable in the UK, the insurance industry would have been liable for almost £2bn extra in overall costs.

Over-the-top law?

Kinley added: “The UK probably could not have done this before 1 January this year because of the need to comply with EU motor insurance law.”

Under the Vnuk law, the EU treats any motorsports collision involving vehicles, for example go-karting or Formula 1 (F1), as regular road traffic incidents which require insurance coverage.

The government believes this could have decimated the motorsports industry by adding extra costs of around £458m each year.

Grant Shapps, the government’s transport secretary, said: “We have always disagreed with this over-the-top law that would only do one thing – hit the pockets of hard-working people up and down the country with an unnecessary hike in their car insurance. I am delighted to announce that we no longer need to implement it.

“Scrapping this rule would save the country billions of pounds and is part of a new and prosperous future for the UK outside the EU – a future in which we set our own rules and regulations.

“As well as the likely financial burden on British road users, the Vnuk rules are considered unnecessary as there are already insurance packages available to Brits that cover certain risks on private land.”

Dovetailing whiplash reforms

Speaking about motorists saving on average £50 per policy, Glyn Thompson, head of the motor Sector Focus Team at the Forum of Insurance Lawyers (FOIL) and technical lead for motor at Weightmans, told Insurance Times that “the move dovetails with the government’s stated aim of the forthcoming whiplash reforms – being to reduce the costs of insurance for consumers”.

He said: “Stemming from the 2014 Court of Justice of the European Union decision in the case of Vnuk, as a member of the EU, the UK was required to comply with the EU Motor Insurance Directive (MID) by compelling insurance cover for all ‘motor vehicle use’, whether it be on private or public land.

”The UK has been avoiding fully adopting the requirement ever since. The Road Traffic Act has only ever compelled the need for insurance on roads and other public places and it seems that position will now persist.

“Expanding not only the need for insurance to private land but, inherently, the types of vehicles requiring insurance - to include vehicles such as those used in motor sport – Vnuk threatened the very existence of that industry.”

Change in legal definition?

Kinley added that although this does not mean e-scooters can be ridden on roads without insurance, “it does indicate either a likely change in the legal definition of [a] motor vehicle for insurance purposes or further carve-outs from the existing definition in order to exclude many types of non-standard vehicles”.

“In that sense, the direction of travel would seem to point to e-scooters eventually not being subject to compulsory cover. That said, the current e-scooter trials do fall within scope and the DfT has stated it intends to wait for the results of those before taking final decisions on regulatory issues such as insurance,” he continued.

As quick as possible

Calum McPhail, head of liability claims at Zurich, said reversing Vnuk will be a “welcome and positive development”.

He added: “The Vnuk decision introduced the potential that otherwise uninsured risks and costs would have to be met by the UK motor insurance industry despite the fact that no premium would have been obtained and therefore unfairly passing the costs to UK motorists.”

Meanwhile, the ABI also welcomed the government’s plan - it deemed the Vnuk law “an unnecessary requirement”.

Mark Shepherd, assistant director and head of general insurance at the ABI, said: “This should happen as quickly as possible.

“There would have been no easy way to monitor compliance and enforcement for those using their vehicles on private land.

“It would also have been difficult to establish the circumstances of any claim, so increasing the scope for fraud that ultimately ends up being paid for by motorists through their insurance premiums.”