Drivers who cut corners on cover

By Clare Francis

Car insurance is not an option; it is a legal requirement. Even so, research by Mori for Direct Line has found that one in 10 of us knows someone who drives without insurance. This is staggering, considering the possible ramifications of an accident, particularly if you injure someone else.

Car insurance is not an option; it is a legal requirement. Even so, research by Mori for Direct Line has found that one in 10 of us knows someone who drives without insurance. This is staggering, considering the possible ramifications of an accident, particularly if you injure someone else.

The trouble is that insurance premiums have increased so much over the past couple of years that some people are cutting corners and avoiding taking out a policy. Not only are they taking an incredible risk but, according to figures from the Motor Insurers' Bureau (MIB), uninsured drivers are costing the insurance industry £400m a year.

The MIB controls a fund that was set up by the insurance industry to cover the costs of accidents involving uninsured drivers. These costs are rising, partly because there is an increasing willingness to sue for compensation after an accident. While this is understandable, it is one of the reasons behind the rise in insurance premiums. The money in the MIB fund comes from the premiums of those with cover. So those of us who insure our cars face the double burden of rising premiums and subsidising those who don't have insurance. According to Direct Line, this costs policyholders about £30 extra a year.

The Mori research indicates that public opinion demands a stronger deterrent to stop people driving without insurance. Of the motorists surveyed, 27 per cent believed fines should be increased, while 22 per cent favoured jail for persistent offenders. At the moment you can be fined up to £5,000 and get an automatic licence endorsement of between six and eight penalty points for driving without insurance. However, Direct Line points out that under new guidelines the suggested fine is between £50 and £150 for someone earning £100 a week.

But from next year it should become easier for the police to spot uninsured cars. The Motor Insurers' Information Centre (MIIC), a subsidiary of the MIB, is co-ordinating a database that will enable the police to immediately identify immediately any motorist who is uninsured, through a check on the registration plate. This change should not only reduce the number of uninsured drivers on the road, but could also cut the extra amount insured drivers pay on their premiums.

The cost of cover has increased hugely. The AA's research shows that car insurance premiums went up by nearly 21 per cent in the year ending this July. However, evidence from the last quarter suggests that the rate of increase could at last be slowing down.

James Green, managing director of online insurance broker Quote and Buy (qandb. co.uk), says the huge increases arise from bigger liability claims and increasing medical costs. He points out that if you have an accident on a motorway, not only does the insurance company have to foot the bill for any damage done to the central reservation barriers or road signs, it also has to pay for the emergency services and NHS costs.

In addition to rising costs, insurance companies have lost money in recent years because pay-outs have exceeded premiums. Figures from the Association of British Insurers (ABI) show that the industry has lost more than £1bn each year since 1996. Premiums are therefore rising because insurers need to claw back some of this money.

In spite of this, competition within the insurance industry means that you can still get a good deal, so it is worth shopping around. Young drivers, particularly males, need to do some research as they generally find it hardest to get affordable insurance.

Paul Baxter, head of insurance at Tesco Personal Finance, says statistics show that 17- to 19-year-olds are twice as likely to make a claim as older drivers, and those they make are three times greater than the average claim made by drivers aged between 25 and 29. Many companies therefore will not insure young drivers at all; and those that do charge massive premiums.

The Independent on Sunday asked for quotes for a 17-year-old driving a five-year-old Peugeot 106 with a 1.1-litre engine. The cheapest comprehensive cover we found was from Tesco at £1,713.60. The next best quote was £2,810 from Elephant. Some quotes were higher than the value of the car itself (£3,500). With prices like these, it's not surprising some people are finding it too expensive to insure their cars.

There are ways that the premiums for new drivers can be reduced. The ABI suggests that new drivers complete a Pass Plus driving course, which will enhance their driving experience and cut their premiums by about 25 per cent (equivalent to one year's no-claims bonus). The ABI also recommends consulting a broker, as in this way it may be possible to find insurers which specialise in young drivers. It may also work out cheaper if the car is insured for third party, fire and theft, rather than fully comprehensive cover.

Regardless of your age or risk group, however, there are other ways to lower your premiums. Norwich Union's tips include keeping the vehicle in a garage overnight, installing a car security device, restricting the number of drivers on the policy, and increasing the voluntary excess on the policy.