The Big Question November 2024: What does UKGI hope will result from Labour’s motor insurance taskforce?

Matthew Maxwell Scott, executive director, Association of Consumer Support Organisations

While it is welcome that the government has gone some way towards meeting its promise to investigate the high cost of motor cover, its new taskforce – established in October 2024 – must not allow insurers to mark their own homework.

It is therefore positive that the process is being led by officials, not by the usual industry insiders.

The Department for Transport and the Treasury need to challenge not just average premium prices, but also consider policyholders hit with particularly high charges.

They should look at the value for money offered as well, especially at the point of claim – currently, soaring premiums are not reflected in an improved claims service.

We also hope that the taskforce understands that motor insurance should be treated differently to other products because it is compulsory, with no consumer power of exit.

This means we need more pricing transparency, especially in relation to investment returns and the profits made from those who pay monthly – often people who can ill afford extra costs.

Finally, the taskforce should ask whether insurers are dragging their feet on liability decisions in the Official Injury Claim portal, for example, leaving a long line of injured claimants wondering whether there’s any quid pro quo for the money they shell out.

Mervyn Skeet, director of general insurance policy, ABI

The insurance industry is very aware of the pressure the cost of motor insurance is putting on household budgets.

We know how essential a car is to people’s everyday lives and, as a legal requirement, how crucial access to affordable insurance is for drivers. Action to combat the cost of motor insurance continues to be a top priority for the industry.

Motor claims payouts have hit record levels in recent years, driven by several factors including vehicle thefts and repair costs.

Plus, 2023 was another difficult year for motor insurers, with data from professional services firm EY – published in April 2024 – showing that insurers paid out £1.13 in claims and expenses for every £1 they collected in premiums.

We have long said that the industry cannot tackle this issue alone. But, far from staying stationary, the insurance industry has already played a leading part in driving action.

For example, we established a board subgroup on motor insurance affordability in 2023, which continues to meet regularly. The group has led the development of our affordability road map to tackle motor insurance costs, which we published in February 2024 – this identified steps for our industry, the government and regulators to take in order to mitigate high premiums.

It also established our premium finance principles, which were formally launched this spring.

While average premiums have fallen recently, we know that there’s no room for complacency and cost pressures are still significant. By seeking input and expertise from the industry and consumer champions as part of a stakeholder panel, the government’s newly launched taskforce can help progress collective action.

This challenge is complex and those on the taskforce are aware of that. However, by bringing our ideas to the table, we hope to achieve better results for drivers and the industry alike.

Richard King, chief executive, Ticker

The government is investigating ways to lean on insurers to solve the problem of increased insurance costs. Higher premiums have mostly been caused by inflation, the responsibility for which tends to sit with the government.

An immediate way to mitigate the cost of insurance is by reducing insurance premium tax (IPT).

A 17-year-old pays three times the average amount of IPT because their premiums are higher. Although the new Labour government has not increased IPT in its new budget, thank goodness, it would have been an opportunity to reduce that burden for young drivers right away.

It’s a drum that’s been beaten before, but it needs to get louder because we should not be putting financial pressure on young people.

Let’s hope an IPT reduction will be among the motor insurance taskforce’s recommendations.

Graeme Trudgill, chief executive, Biba

It was pleasing to be asked to join the taskforce as part of the government’s stakeholder panel and we have already held our first session. Biba speaks for our insurance broker members and we plan to feed back their views and experiences to help develop more positive customer outcomes.

There have been a number of significant pressures on motor insurance premiums in recent years.

For example, the motor vehicle sector is going through a period of change globally, with new, more expensive technology used in vehicles, along with electrification.

We have also seen reduced insurance capacity in certain segments, longer repair periods and resultant longer credit hire periods, increasing theft claims on high end vehicles and, in general, higher claims costs.

It is extremely important to see claims costs begin to reduce. The largest element of what motor insurance premiums pay for is injury claims, therefore it follows that claims costs for personal injury claims are a significant part of rising claims costs.

The amount of compensation payable when someone is injured and another party is at fault is driven by the personal injury discount rate (PIDR), a percentage figure that is used to help calculate awards for life changing, serious injuries.

The rate that applies is different across the UK. In Scotland and Northern Ireland, the rate was changed to 0.5% in September 2024. The move to a positive percentage was welcome.

In England and Wales, the discount rate – which is typically set by the lord chancellor – is currently under review, with a new rate due to be applied by January 2025. At present, the rate is minus 0.25%

While it is fair and just that a settlement will meet a victim’s current and future needs – neither under nor overcompensating them – a negative discount figure means that the growth of compensation through appropriate investment is not taken into account and insurers are obliged to disregard investment growth when making a lump sum compensation award intended to last a lifetime.

Biba has long called for the personal injury discount rates applying across the UK to be fair and equitable. It is imperative that the England and Wales review results in a positive multiplier. We hope that if all the UK rates are set as positive figures, we will see a reduction in claims costs.

Colm Holmes, chief executive, Allianz Holdings

I understand why many motorists think they are getting a raw deal and I am passionate about addressing this issue – both as chief executive at one of the UK’s largest insurers and as chair of the ABI board’s subgroup on motor insurance affordability.

Motor premiums have become a big headache for people already struggling with wider cost of living pressures. Though premiums are showing signs of falling, we want to ensure that direction of travel continues. It’s important for consumers and for our industry.

This is easier said than done, however.

The problem in the UK appears to be worse than in some European countries and is compounded by many factors – including a rise in the number of accidents in recent years, the cost of repairs rising above inflation, the prevalence of insurance fraud and motor theft, as well as our potholed roads.

Ultimately, Labour’s taskforce will need to assess these many challenges and help lay a pathway for change, drawing on a range of solutions.

For example, young drivers are overrepresented in statistics for involvement in fatal and serious road traffic crashes, with higher costs incurred, so what about introducing a graduated driving licence scheme? This could help improve the safety of young drivers and reduce insurance costs.

We believe that if the industry, regulators and government all work together, then we can make real progress. We stand ready to help.