Warning to the young: don't cut corners on car cover

Don't go on your parents' policy if you're the main driver – there are legal ways to reduce the high cost. By Julian Knight

The escalating cost of motoring has come as a shock to many recently as they fill up at the pumps, but for young drivers, the financial pain is nothing new – it's been part of the landscape for years. This is due to the huge cost of car insurance. Statistics show that younger motorists are many times more likely than the rest of us to be involved in an accident, and even to have their cars stolen, and this is reflected in the premiums.

"Young drivers can routinely pay upwards of £1,500 for car cover," says Keith Maxwell, the head of products at insurer More Than. "The quickest way to cut this is by building up a no- claims bonus, which can ultimately reduce premiums by half to two-thirds."

Another popular way round high insurance costs is for young people to be put on their parents' cover. This can mean huge savings as the premiums are based on the claims record, age, driving history and occupation of the mothers and fathers, rather than the children. The fee for becoming a named driver can be as low as 10 per cent of the cost of the premium.

However, insurers report that a dangerous game is being played by people choosing this option, as in reality the younger driver is often the main driver. This is a practice known in the industry as "fronting" and technically it is fraud. And this time of year, when thousands of teenagers are going away to university, is prime fronting season.

"Students and their parents are often unwittingly committing fronting. The younger person takes the car away and in effect becomes the main driver, yet the policy still has the parent's name on it," says Keith Lewis from insurer Zurich.

"People either don't think about what they are doing or simply assume it's legal. It's not. Not only can it lead to a claim being refused but also both the young person and their parents can be charged with insurance fraud."

Insurers admit that it's hard to tell when fronting is going on – until, that is, a claim is received.

"People are at their most honest when they are calling initially after an accident," adds Mr Lewis. "They don't have time for a cover story, so this is often when they tell us they are the main driver, rather than their parent."

Even if the claimant doesn't come clean, there are some other key indicators. "Our claims handlers will look at where the accident occurred and compare it to the address on the insurance policy," Mr Lewis says. "For example, if the car is insured in a parent's name at an address in Newcastle but is involved in an accident in a university town such as Oxford, then fronting may be happening."

Fronting may also prove a false economy in the long run. Not only are you driving with insurance that is likely to prove invalid if you have an accident, but you will not be establishing the crucial no-claims record. "This is the passport to cheaper premiums. It's best to bite the bullet and start building it up as quickly as possible," says Erik Nelson from Norwich Union (NU), the UK's biggest insurer.

NU has adopted a novel approach to help younger drivers, aged 17 to 29, build up their no-claims: "We offer a rapid bonus scheme. Basically, you insure the car in a block of nine months, at the end of which you are credited with a full year's no-claims bonus," explains Mr Nelson. "In effect, you can build up a full five-year bonus in under four years."

But NU recently called a halt to its pay-as-you-go insurance initiative, which offered younger drivers the chance to save substantially on premiums. The scheme relied on GPS technology: the drivers would have a box installed and these would monitor their driving. At the end of the month, they would receive a bill based on the miles covered and the time of day the car was used. The idea was that motorists who covered fewer miles and drove at periods – during the daytime but outside rush hours – when it was statistically less likely they would be involved in an accident would not have to pay as much for car insurance.

"The scheme was open to young drivers and we were able to cut their premiums. We saw a 30 per cent fall in accident rates as people thought about their car use," says Mr Nelson. "We had hoped, though, that the car manufacturers would start offering the GPS boxes as standard. "Ultimately, the expense meant we had to call a pause."

As part of its Drive Time initiative, More Than uses the same technology to impose what amounts to a curfew on 17- to 22-year-olds: cheaper premiums are on offer in return for agreeing not to drive between 11pm and 6am. The GPS technology will allow the insurance firm to see if the car has been used during these hours, and a £25 penalty will be imposed. "People can drive during the night time," says Mr Maxwell at More Than, "but they will have to pay for the privilege."

More Than estimates that it costs the firm £250 to install the GPS technology – money well spent according to Mr Maxwell: "We are trying to understand the dynamics of the young driver market and see what technology can do for us and the policyholder. The big idea is to price more accurately, so responsible younger drivers can avoid very high premiums."

Those who do not like the sound of a curfew can take more conventional steps to reduce their premiums. "Look at taking the Pass Plus driving course. This advanced qualification can bring discounts of 10 per cent on premiums," says Mr Nelson.

Mr Lewis argues that taking a little time to consider what type of vehicle you want can offset some of the financial pain. "Go for a smaller car in a low insurance group. And consider if you should go with third party, fire and theft cover rather than fully comprehensive, and whether you need the car for commuting or just leisure driving."

Mr Maxwell recommends paying a voluntary excess. "Younger drivers will have an excess imposed, but by agreeing to a slightly larger one, the premiums can be cut."

But the overall message from insurers is not to be tempted to go in for fronting. "One of the first things we check when a claim comes in is whether there has been any fronting," says Mr Maxwell. "It's not a wise move."

'Why would any 18-year-old buy car insurance?'

Kev O'Sullivan, 26, fronted for three years between 2000 and 2003 while at university, without realising he was doing anything wrong. "I had a Fiesta insured in the name of my parents but I took it to university with me. It was only afterwards that I realised I had been fronting"

He was far from alone in fronting while at university in Warwick. "The campus is quite out of town, so lots of students drive and all the ones I knew were insured in the name of their mothers or fathers. It was the only way that premiums were even remotely affordable. Why would any 18-year-old buy car insurance?

"I suppose I did have a niggling doubt at the back of my mind that what I was doing wasn't 100 per cent legit, but I never thought that the insurance could be invalid. There needs to be more information for students with cars."

When he graduated, he decided to transfer the cover to his own name to build up a no-claims discount. "I started to pay my own way in life and moved to London with my car."

But Kev, who now lives in Hampstead, north London, and works in marketing, no longer drives. "The Fiesta is parked in a garage at my parents' house and is legitimately insured. I haven't driven it since 2006."