Age law 'will drive up car insurance costs' - March 2009

This regularly updated section of the HomeApproved web site will cover the latest trends, research, opinion and developments in the UK car insurance sector.

Age law 'will drive up car insurance costs'
Insuring your car and holiday is likely to be more expensive under Government plans to bar age discrimination, the industry warned yesterday.

Millions of motorists face hefty car insurance price rises and the cost of travel cover could double if firms are no longer able to take customers' ages into account when assessing risk, insurers claim. All other forms of insurance will also be hit by the 'unintended consequences' of the Government's legislation, the Association of British Insurers said.

But while the ABI said it would be unfair on other consumers if its members were not allowed to take age into account when setting premiums, campaign groups for the elderly insist it is wrong to discriminate on age.

Statistically, the riskiest drivers are older drivers, particularly those over 85 and younger drivers in the 17 to 21 bracket. But the effect of a proposed Equality Bill banning age discrimination in the provision of goods and services would be to force drivers considered a low risk to subsidise those considered a high risk, the ABI said.

The industry fears that further legislation might also affect its ability to charge older - and riskier - customers more. That would lead to firms passing on the higher costs associated with insuring older people to all customers.

The ABI said the average cost of a claim by a 60 to 64-year-old driver is £1,170, while the average claim by someone aged over 80 is £1,716 - almost 50 per cent more. It added that the average travel insurance claim for someone over 65 was nearly three and a half times higher than for those under 50.

It said that a law that restricts the use of age would mean insurers not being able to take account of the differences in risk among older customers without adopting a more expensive and intrusive approach, such as individual medical assessments.

The ABI also claims such legislation could reduce competition, particularly as niche firms, such as those offering travel insurance-to backpackers, would no longer be able to operate.

The issue has echoes of an earlier insurance discrimination row when Whitehall looked at the premiums charged to male and female drivers. In that instance, insurers successfully argued there were fundamental risk differences in the accidents suffered by men and women.

Men typically have fewer accidents, but those they do have tend to be more costly. Women, by contrast, have more accidents, though these tend to be lower speed shunts. Firms such as Sheila's Wheels used the difference to offer lower premiums to women.

The ABI's Malcolm Tarling said: "The age discrimination legislation may be well-meaning, but it creates unintended consequences. At the end of the day, what we are assessing is risk. "And in this respect age is a factor. We won the argument over the relative risk between men and women drivers. We hope ministers will listen to reason over age."

Nick Starling, an ABI director, said: "Insurers only use age where it is relevant, and restricting their ability to do so would rebound on all customers, through higher premiums." But Paul Cann, of Help the Aged, said the ABI was missing the point, as the legislation did not propose removing age as a measure of risk entirely, but only where it was used as a blanket exclusion.

He added: "Age alone should not be the basis for an insurance premium or quote. Insurers are entitled to make commercial decisions, but these should be based on evidence of risk and not the date on a birth certificate." Gordon Lishman, of Age Concern, said: "The insurance industry is riddled with age related practices causing significant harm to older people.

"Many insurers apply upper age limits for motor and travel insurance, leading to older people being cut out of insurance cover. These obstacles mean some older people give up travelling to visit family and friends."

ENDS

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