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Car Insurance Committee

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Order, order. Good afternoon and welcome to the committee. Could you

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give us your name and organisation? Good afternoon, my name is Elizabeth

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Box, I am head of research at the RAC Foundation. Nigel Dotchin, and I

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chaired the Wheels two Work Association. In a survey of people

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who have signed this petition, we were told that the cost of car

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insurance is a great bar to people's access to insurance, do you agree

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with that and is it particularly young people or people generally? We

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would certainly say with the evidence that we have seen that it

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is a significant issue for young people. People of all ages but

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certainly young people and the issue of the cost of insurance. Some of

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the work that we have done found that looking at the Department of

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the work and pensions database, one in five job advert required people

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to have access to the vehicle. And in the apprenticeship database, it

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is one in six. Given that young people trying to access employment,

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that is a big issue. 63% of people travel to work by car. It is higher

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in rural areas. It is a big issue. It is particularly an issue for

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rural areas? Yes but we also see it in city areas as well, so in London,

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we know that about 22% of 17 to 34-year-old needs to travel to work

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by car. It is not just a rural issue. What help can employers give

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in this situation? Would either of you like to talk on that? To follow

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up on that question, I would support Elizabeth on what she said on the

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cost of insurance and the cost of driving generally being a factor in

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determining whether people can access work, implement and training.

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That is why Wheels two Work Association was set up in the first

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place, to provide an affordable form of transport for people,

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particularly in rural areas but not just there, to access those areas.

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There is a range of issues that come into play which determine whether

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one can access your place of work or whatever it is. Insurance clearly

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comes out of the evidence we have that it is one of the factors but

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not the only one. In terms of whether employers can help, it is a

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difficult one, some employers will provide help individually if they

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are keen to take on board young people in their employment, but I

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fixed the challenge is the fact that if an employer is fated to people,

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one of whom can drive and one who cannot, the chances are they will

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offer the employment to the person who has access and is able to drive.

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Some of the petitioners who responded to the survey have said

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that the price of car insurance does make it difficult for them to access

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education or training. So to what extent do you think in particular

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the cost of car insurance affect their ability to access this? We

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certainly know from the RAC report that was done last year that people

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said the cost of car insurance generally is a big concern and it is

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rising up the agenda over the last few years. Now people say the most

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important thing is road maintenance, then people using mobile phones in

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cars, then car insurance is often that, so people think it is a

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concern. -- car insurance is after that. The premium tax has been

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raised recently, hired than the rest of Europe, and with the discount

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rate analysis today, it will be even harder for young people to get car

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insurance. You mentioned a figure that one in five job adverts, one in

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six then shipped adverts, require access to a car. Are you aware of

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any help that is available to try and support young people with access

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to a car and the affordability of car insurance in order to try and

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meet those requirements? I am not aware of any apart from the very

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good Wheels To Work Association programmes which occur in part of

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the country which is more about motorcycle usage for people to get

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to work so that they can purchase their own. I am not aware of any

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schemes either that help young people which is why Wheels To Work

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Association is out there, to provide an alternative to people who cannot

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afford to buy a car, run a car or access public transport, it may be

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not there or may not run at a time they want or it may not be

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affordable. What Wheels To Work schemes do is provide an opportunity

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to get access to a relatively cheap form of transport, ie a motorhead or

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scooter. One of the things is that -- mopeds or scooter. One of the

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things is that the scheme pays for the insurance for those bikes. So it

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is something that they do not need to worry about. For young people

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still in education, are you aware of any support that is available,

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particularly with the support for car insurance if they require that

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in order to get to their place of study? I am not aware of any in

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education but in terms of, since the educational maintenance allowance

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was scrapped in the UK, they rely on bursaries from their colleges and

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places of training. We know that that is a key issue for them. We saw

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from the survey that a large percentage of young people cannot

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access places of further education because of that, because they do not

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have access. It comes down to money, really, and the fact that they do

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not have that money to access that form of transport. There are some

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interesting different forms of car access that you can get now, in

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interesting different forms of car access that you can get now, cities

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under options, like car share schemes, but young people do not

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have good access to them, one in London says that you need to be at

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least 23 or have two years experience so it it difficult for

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young people. What impact does this have on social lives of young

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people? I am interested if there is any research regarding the issue of

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cost and social exclusion issues. We know in a general sense that eight

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out of ten people say that if they did not have a car, the lifestyle

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would speak affected, we do not have a broken down by age. 10% of the

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poorest households are spending 22% of their income on car related

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outgoing. It takes a lot out of people's Mac wages. From our

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anecdotal evidence, largely, we know that access to social activities is

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a key component and without access to any form of transport, people are

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not able to engage on day-to-day life, depending on where they live,

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particularly acute in rural areas. It is not just employment, it is

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participating in what is going on out there. The key -- it is a key

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consideration for young people. Our survey respondents said that they

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felt socially isolated, my own constituency which is not rural

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comedy Central Belt Scotland but is a mixture of villages and towns,

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people in my area would be completely isolated in the evening

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if you do not have a car and your friends were in the next town. I

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think the evening factor is crucial, because not only do a lot of young

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people work in the night-time economy, their social activities go

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on in that period and that is where public transport is not available,

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not in the evenings. An alternative form of transport is something we

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need to look at. Without a car, does access to the scooter help in that

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respect? We have heard from young parents and carers who are

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struggling to meet the cost of insurance. What more can be done to

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help that particular group who may be unable to afford it but

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desperately need to use a car? We would favour the idea of a cap is an

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interesting one. It this he has implications because -- we obviously

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know it has indications because young people are more likely to be

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intelligence and there are costs related to that. It has begun in

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other countries which have more tightly regulated insurance systems.

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We could decide as a society that we could make it more affordable for

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young families in certain situations to get insurance but it has knock-on

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implications. The key thing for us is the need to understand the root

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cause of high insurance costs, we want mobile young people but we also

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want a safe young people. Given in the UK our insurance market is based

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on individual risk, whereas in Europe it is based on the vehicle,

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we need to understand better how we can reduce the risk for young people

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and we know a lot about how we can do that. Do you think there is

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something to be said, being released at about the cap, that it should

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just apply to certain groups that need a car, such as young parents

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and carers? That could be an option. The other option which we have put

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across in our submission which is whether you can do something with

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insurance premium tax. Those people who pay the most pay the most tax,

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you could with particularly learner drivers, you could get them to get

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more experience after they passed that tests, they could be safer and

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there would be lower insurance costs. On that one point, having

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taken out insurance relatively recently, I do not recall being

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asked if I had children. You would have thought that a 20-year-old

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parent that is going to be driving their kids around would be a much

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safer driver or would drive in a safer fashion than 20 Robert did

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not. I am -- than a 20-year-old that did not. I am perhaps being overly

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objective. If the insurance criteria in terms of your assessment, giving

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out insurance, is its objective or objective? If it is subjective, you

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could consider a person who is a family and carrying their kids

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around is more likely to be a safer driver, dried in the speed limit and

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not take unnecessary risks. From our understanding, the insurance costs

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are based on four things, the cost of the vehicle, its likelihood of

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theft, the cost of overall claims generally and then the risk of the

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individual. So how they can take the risk of the individual is based on

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age, location, employment, I would not over they include that but you

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are right, it could be more detailed, the systems. What is

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interesting about the telematics market, 500,000 are now in

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operation, that is having moment by moment risk assessment of what young

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people are doing and it has feedback to help change their behaviour. So

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it could be more intelligent that we have got one of the most complex

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systems in terms of telematics in Europe. Do young people who have

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disabilities face a particular problem because of the cost of motor

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insurance? In your experience? I think there is an issue about higher

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premiums for people with disabilities, it depends very much

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on the disability, of course. The challenge at the moment is there

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assessment and access to the Motobility scheme. We have got lots

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of examples where people have had to hand back the car. Once they have

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done that, they find themselves in a very difficult position. So disabled

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people who are very pendent on getting around, whether it is to

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employment -- very dependent on getting around, whether it is to

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implement social activities, find that their means of access is taken

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away, whether they can use a big transport is something which would

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depend on that individual. And young people with caring responsibilities,

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they have particularly difficult times as well? I think that is true.

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I think that the specific example of carers, whether they are young or

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all, getting around, and the visits that they have to make, which is why

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we have been looking at things like alternative forms of transport for

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them if they cannot afford the car or insurance, is it possible to

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develop scooter schemes for them? We know that some of the caring

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organisations are talking to grow one as to how those schemes can help

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carers. -- they are talking to Wheels To Work. A lot of the

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respondents to the survey said that public transport in particular was

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often too infrequent, to unreliable and too expensive, do you think

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enough is being done to make public transport a viable alternative to

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car ownership, in particular for young people?

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We don't think there is another thing Talanoa think the figures of

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how many people rely -- who rely on their cars in rural areas shows

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that, it can be expensive for the journeys they make. There has been

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some research saying that for certain people, you could use that

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money for taxes when you needed but people feel they needed for the

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safety net, especially in rural areas because they feel they don't

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have a reasonable service that gives flexibility. Especially for people

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who have independence and need that flexibility, public transport is

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just not flexibility enough. We would say in urban areas, obviously

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the public transport option can be a real viable alternative there is a

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need to be realistic about what is the potential in rural areas,

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because it is such a sparsely populated area over such a diverse

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network, it is quite difficult to serve in the way people would like.

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It's a particularly difficult problem, because the situation is

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getting worse. If you move outside of London, particularly in rural

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areas, where it depends on local Government financing, more and more

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services are being cut and we heard recently of a bus service from

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centre eyes to lands end which goes through 12 communities -- St Ives.

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That has been cut back. Once that disappeared, it is very difficult.

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One of the main things young people have said is that fact that public

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transport doesn't run when it needs to. More and more people are doing

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shiftwork and working in Evening Standard becomes very difficult. If

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you have a bus that is every hour, and in some cases there are some

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examples of one a week, it just doesn't work for them. And the other

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thing, coming back to disabled people, of course that transport

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system has to be accessible and that's another consideration for

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young disabled people. You have already touched on the issue of

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public transport in rural areas and I have had experience of Wheels to

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Work working for young people in my constituency, so thank you for what

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you are doing there, but I just wondered if you thought there was

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anything particularly the Government could do to address this issue with

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regard to rural areas, where as we have highlighted, the problem could

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be much more of an issue than urban areas. From a Wheels to Work

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perspective, it is about funding and having more schemes out there and

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growing those schemes and Wheels to Work has struggled over the years

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because it is very much dependent on grants, there is no sort of central

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Government funding at the moment and we are looking at ways in which we

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can encourage that and move towards... Do we have the funding

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organisation similar to the community transport Association? At

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the moment, there are ad hoc schemes across the country, dependent on

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local authorities and how they see it and attach importance to those

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particular schemes. The funding goes up and down. If you look at the

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number of schemes over the years, Ukip peaks. In 2002, we had 60

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schemes, then it went down to 20 by 2012 and it is at 38 at the moment

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-- you get peaks. It is very much dependent on where the money comes

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from. A lot of it, we try to encourage to be self-sufficient and

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sustainable and we have evidence to show they are doing that, they are

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reliant on more activities of their own, dealerships and things like

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that, which can bring in a bit of money but whether we can get to

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100%, one or two of the manager by various means but there is always

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going to be a requirement for an element of subsidy and the question

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is where does that come from? Local authorities are finding it very

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difficult at the moment. We are reliant on things like in the past,

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the local sustainable transport fund, the access fund, but they do

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not go on forever. It is interesting that just under half of young people

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have a driving licence, which demonstrates some are managing to

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get by without having a driving licence and when we look at the

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National transport survey data, it indicates a high proportion of young

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people do say they want to get a driving licence in the next five

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years, because they demonstrate that a need for it. We did some work as

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part of the car in British society back in 2010, when we held focus

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groups with young people and we held it with those who had lost their

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driving licence for one reason or another, and it started to get under

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the skin of what happens when people have planned a live around getting a

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car and for whatever reason, losing their license or not being able to

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afford it, couldn't get access to a vehicle and it demonstrates how

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important the car is to people in rural areas and how difficult they

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find it when that safety net is taken away. Just following up on the

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Wheels to Work, would you say that access to Wheels to Work or a

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similar alternative scheme, if there was one, would you say that that

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offered young people the same access to education and training as those

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with full car ownership? I think most people, most of the clients, if

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you like, four Wheels to Work, see it as a transitional process. They

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can't afford the car now, but the use of a scooter or Obed gives them

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that access for six months -- Ore mopeds. Some of them will obviously

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become keen motorcyclists, if you like, and take it up but the

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majority from our survey suggests that once they can afford it, they

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would move on to using a car. So that would be their aspiration, I

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suppose. The other thing, for example, there is the distance

:21:34.:21:37.

involved, that is another key component of this, because if you

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are travelling by cycle, for example, which is about five miles,

:21:43.:21:50.

but for a mopeds or a scooter, you can do up to 30 miles but if you

:21:51.:21:53.

have a journey or a commute longer than that, the car becomes the

:21:54.:21:59.

better possibility, if you like. I think those are the sort of criteria

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that they would take into account. And what opportunities are there at

:22:06.:22:09.

the moment for young people to get access to a pool car? To a pooled

:22:10.:22:21.

car? Yes, or supported or subsidised access scheme? As Elizabeth

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mentioned before, it becomes difficult dependent on age. You said

:22:26.:22:29.

there was a two-year qualifying period usually, so it is difficult.

:22:30.:22:35.

We understand it is difficult and young people can't often get access

:22:36.:22:39.

to a rental car until they are 21, because rental firms decide it is

:22:40.:22:43.

too risky to actually have younger people, unless they have lots of

:22:44.:22:48.

experience, involved in that. So what do you think are the main

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obstacles to ensuring a wider access? Is it, as you have mentioned

:22:53.:23:01.

Nigel, in terms of Wheels 2 Work finance, basically, financial

:23:02.:23:04.

support to try and subsidise vehicle access for young people? I think it

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is having the alternatives there, that for example, you if you can't

:23:12.:23:15.

afford a car, then you need some alternative form of transport and

:23:16.:23:20.

it's not always available. In terms of Government, what can the

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Government tried to do to widen access? I think most of the onus is

:23:23.:23:29.

going to be on local authorities and what they decide to do. The current

:23:30.:23:34.

policy is to leave it at the local level. As far as Wheels 2 Work is

:23:35.:23:38.

concerned, then it is from the centre, there is consideration that

:23:39.:23:43.

could be given to longer term funding, if you like, put that in

:23:44.:23:49.

place. That would be one role. There is the whole question about the bus

:23:50.:23:55.

subsidies and so on, again, that would need to be considered as well.

:23:56.:24:00.

It is having, if you like, an integrated transport system out

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there and making sure that the whole picture is being looked at in the

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round, that it's not just a case of access to employment, access to

:24:12.:24:14.

education, training, but getting all the partners together to discuss how

:24:15.:24:18.

best it can be delivered and that needs to be done at the top, because

:24:19.:24:24.

a lot of this is delivering the policies of wider Government

:24:25.:24:27.

departments. You know, it is not just transport, it is environment,

:24:28.:24:32.

in terms of pollution, congestion, so on. Things like the

:24:33.:24:37.

apprenticeship agenda and so on as well as education. So what

:24:38.:24:40.

Government can do is bring everybody together and address this particular

:24:41.:24:45.

issue. I think what we would say, in terms of what can the Government do,

:24:46.:24:49.

again, it comes back to the root cause of why it is so difficult for

:24:50.:24:53.

drivers to get car insurance and that is because they are a very high

:24:54.:24:59.

risk to insurers based on the way we price risk insurance in this

:25:00.:25:02.

country. The Government could do something around the way we learn to

:25:03.:25:06.

drive, there have been some good moves around this new driving test

:25:07.:25:10.

which is much more real world but there hasn't of getting young people

:25:11.:25:13.

more on road experience before they take their test and also, in a post

:25:14.:25:18.

test environments, we know that postgraduate driving tests can be

:25:19.:25:25.

very effective tool reduce injury and deaths by 20-30% and some of the

:25:26.:25:31.

research around it says it is universal law that puts in place

:25:32.:25:34.

protections for the public and when we don't have it in place, we need

:25:35.:25:38.

very specific level interventions to guard against the fact that there is

:25:39.:25:42.

a public health risk associated with young drivers. So there is a lot we

:25:43.:25:47.

can do in a driving test. In particular, we very much focused on

:25:48.:25:51.

skills training, physical skills training, but not behavioural skills

:25:52.:25:54.

training. There has been some work done in Australia that found if you

:25:55.:25:58.

give young people resilience training, how you minimise risks for

:25:59.:26:03.

young people with alcohol and drugs and other risky behaviour, as well

:26:04.:26:07.

as driving, they found that overall, that resilience training meant they

:26:08.:26:10.

could have a 44% reduction in their crash risk in the first year of

:26:11.:26:17.

driving. And these are the sort of initiatives,... Graduated driving

:26:18.:26:20.

licences are difficult because of freedoms and young people needing to

:26:21.:26:24.

get employment opportunities, but there are other behavioural

:26:25.:26:28.

approaches that could be taken to actually improve the situation for

:26:29.:26:36.

young drivers. You said that training can result in a 44%

:26:37.:26:43.

reduction in accident risk. Would that result in young drivers coming

:26:44.:26:47.

down to the same level of risk as other drivers or would they still be

:26:48.:26:52.

higher? When the accident curbs are done, it tends to take into account

:26:53.:26:56.

age and experience, so within the first six months of driving, a young

:26:57.:27:00.

driver would probably be around the same risk as another driver, so it

:27:01.:27:03.

is all about getting those 1,000 miles of experience. I'm not sure

:27:04.:27:08.

whether at the moment you can compare those two figures, but it is

:27:09.:27:13.

certainly a very impressive result from something that wasn't driving

:27:14.:27:17.

focus. In this country, we focus, on the worse case scenario, taking

:27:18.:27:26.

young people to things that increase Chris, instead of classroom

:27:27.:27:32.

learning. Teaching these are the consequences and risks associated

:27:33.:27:35.

with your baby about how Duplan to mitigate it in that situation, in

:27:36.:27:49.

your -- risks associated with your and how Duplan to mitigate it in the

:27:50.:27:56.

situation? So is it possible to design insurance around those

:27:57.:28:00.

issues, for example, hours of darkness, whether the driver is

:28:01.:28:04.

alone in the car, so that you design an insurance policy that reduces

:28:05.:28:08.

those risks? Because most accidents, as I understand it, are curbed when

:28:09.:28:13.

a young driver is accompanied, rather than on their own. That is

:28:14.:28:19.

right and graduated driver license approach has a lot to say in terms

:28:20.:28:23.

of that about driving for certain hours of driving with one or no

:28:24.:28:27.

passengers. I imagine in the technology now, you would be able to

:28:28.:28:31.

detect how many people are in vehicles, that would be possible,

:28:32.:28:34.

but if it wasn't able to go down of regulatory route, I think parents

:28:35.:28:41.

are quite perceptive about getting guidance on how those first six

:28:42.:28:46.

months should be proceeding, in terms of parental contracts when you

:28:47.:28:50.

say, only one person in the vehicle and maybe at certain times. I think

:28:51.:28:55.

insurance products have gone down that route before and are now a lot

:28:56.:28:59.

more detailed and there have been some problems associated with having

:29:00.:29:05.

severe cut-offs for the time people should be home, but now they are

:29:06.:29:08.

more based on individual driving, no matter what time of deities. But we

:29:09.:29:12.

certainly feel there is an opportunity for sort by graduated

:29:13.:29:18.

driving licence, a lighter approach in a way, that takes some of the

:29:19.:29:22.

good aspects of that than put it into context which is acceptable.

:29:23.:29:28.

One of the questions I am not quite understanding and perhaps you can

:29:29.:29:33.

help me with, wise motorcycle insurance for young people

:29:34.:29:36.

considerably cheaper than car insurance, especially when it seems

:29:37.:29:41.

a more risky mode of transport? I mean, you are right, it is based on

:29:42.:29:45.

risk but in fact the statistics show that motorcycle fatalities are

:29:46.:29:52.

coming down, and that is in spite of the fact that the number of

:29:53.:29:58.

motorcycles, mopeds and scooters on the ground is increasing. So a trend

:29:59.:30:05.

has been downwards, less accidents involving drivers and... But it has

:30:06.:30:15.

levelled off and this is one of the concerns that the exercise

:30:16.:30:20.

motorcycle industry Association and the police Federation and highways

:30:21.:30:27.

England, last year they published their safety and transport policy

:30:28.:30:31.

framework, which was looking at ways in which the training of motorcycle

:30:32.:30:37.

drivers could be improved and that has been considered by the

:30:38.:30:41.

Department of Transport now, things like the test and so on, so the

:30:42.:30:47.

downward trend is quite marked, over the years, and the statistics are

:30:48.:30:51.

quite revealing in that respect, but it is just in the last couple of

:30:52.:30:55.

years, where it was quite clear that there needed to be more effort, if

:30:56.:30:59.

you like, to be put in to an overall policy and strategy for motorcycle

:31:00.:31:02.

drivers. In terms of Wheels To Work, there is

:31:03.:31:11.

a relatively low risk, our statistics show, but there are very

:31:12.:31:18.

few fatalities, if any, very few accidents, because primarily, if you

:31:19.:31:23.

are a client on the scheme, you have to go through compulsory training,

:31:24.:31:28.

basic training. So it improves your driving skills, and they are

:31:29.:31:33.

provided with things like helmets and protective clothing. He defined

:31:34.:31:40.

as a result of that, the accidents are less. And the evidence suggests

:31:41.:31:48.

that people who have been through that process become more road aware

:31:49.:31:51.

and become better car drivers is that is what they choose to do later

:31:52.:31:57.

on. That helps my understanding. You mentioned the increase in motorcycle

:31:58.:32:01.

use, and I am wondering if that is people my age, the midlife crisis

:32:02.:32:05.

getting motorbikes, or have you got evidence that it is younger people

:32:06.:32:08.

because of the cost of car insurance, they are taking

:32:09.:32:12.

predominantly to bikes? Certainly more people are buying vehicles but

:32:13.:32:19.

they are buying them at the lower end of the market. Mopeds are only

:32:20.:32:28.

50 cc, scooters are 125 cc. So they are relatively slow vehicles. I

:32:29.:32:36.

think it is over 19 you have to have a license if you want to drive the

:32:37.:32:40.

bigger vehicles. The Wheels To Work schemes only focus on the smaller

:32:41.:32:45.

models, which is going to help. But again the statistics show, the

:32:46.:32:49.

evidence suggests that those sales, of those types of models, has gone

:32:50.:32:54.

up row recently. Whether that is because of the cost of driving, we

:32:55.:33:01.

would need more work on that. There are other factors, in cities there

:33:02.:33:05.

is congestion to take into a fact as well, you can get to work a lot

:33:06.:33:12.

quicker and it is cheaper for some people the public transport. The

:33:13.:33:16.

point that came across in the survey, a number of respondents made

:33:17.:33:20.

the claim that motorcycle riders make better car drivers because they

:33:21.:33:24.

have more road awareness. I would agree on face value. Is there any

:33:25.:33:29.

evidence to back that up? We have some evidence from the driving... I

:33:30.:33:38.

forget the title, the driving instructors Association have done

:33:39.:33:41.

some work on that. They do suggest that they make better car driver.

:33:42.:33:49.

That is when I thought, it brings me onto another question, you may have

:33:50.:33:53.

a comment on this, why do we think that insurance companies do not give

:33:54.:33:57.

motorcycle riders who progressed to car use the no claims continuation?

:33:58.:34:04.

We have one, neither does that. So if one can do it, why not the rest?

:34:05.:34:08.

It is also the strength of the evidence, some of the trials that

:34:09.:34:12.

have been done have been small-scale. It would be interesting

:34:13.:34:19.

to see more research done. HGV drivers are being asked to be a

:34:20.:34:25.

cyclist in London, that is a scheme, and certainly from a psychological

:34:26.:34:28.

research perspective, it makes sense to make someone feel what it is like

:34:29.:34:33.

driving like somebody else and get a different perspective. But I do not

:34:34.:34:37.

think there is the research to back up an absolute change in insurance.

:34:38.:34:46.

I have had two sons who have both had mopeds, scooters, at 16 and then

:34:47.:34:50.

at 17, progressed to passing their driving test. We found quite a big

:34:51.:34:55.

difference between insurance companies that gave them a better

:34:56.:34:59.

price because they had had a year the Road experience on the mopeds,

:35:00.:35:05.

and those that did not give them any recompense of that. I wanted your

:35:06.:35:09.

thoughts on why there is such a difference in different insurance

:35:10.:35:12.

company's approach to that. You would have to ask them all stop we

:35:13.:35:15.

will be asking them. Another issue raised by petitioners

:35:16.:35:26.

are responding to the survey is that sometimes, the cost car insurance is

:35:27.:35:28.

so expensive that young drivers simply drive without insurance. Have

:35:29.:35:34.

you found that is a common problem and is there an upward or downward

:35:35.:35:40.

trend in that? There is certainly consequences in terms of having to

:35:41.:35:46.

pay insurance. It can act as barrier so young people cannot enter at all,

:35:47.:35:55.

but as you say, they might under insure, third-party insurance is

:35:56.:36:01.

more extensive in the UK as conference is because insurance

:36:02.:36:04.

companies think it is more risk because someone thinks they do not

:36:05.:36:10.

need that. I think there were some figures from the DVLA a few years

:36:11.:36:16.

old now, about 7500 newly qualified drivers within the first three years

:36:17.:36:20.

were found to be driving without insurance and were thus by those

:36:21.:36:25.

results. That is potentially only the -- and were disqualified as a

:36:26.:36:30.

result. That is potentially only the tip of the iceberg. It is a risk of

:36:31.:36:36.

having very high insurance levels and the expense so people feel they

:36:37.:36:43.

are able to do that. Some surveys have been done were around 50% of

:36:44.:36:54.

the public think it is acceptable to be involved in insurance fraud. It

:36:55.:37:01.

puts pressure on people potentially do things they would not do.

:37:02.:37:10.

Anything to add? In terms of the Wheels To Work schemes, insurance is

:37:11.:37:13.

part of the package so it is not a case of people not having insurance.

:37:14.:37:18.

We have been able to negotiate on half of the scheme is a lower rate

:37:19.:37:24.

-- on behalf of the scheme, to procure a lower rate of insurance

:37:25.:37:29.

for members of the scheme. He mentioned insurance fronting, this

:37:30.:37:35.

is another thing which has come to our attention, how common is that?

:37:36.:37:42.

One survey said that 53% of people thought that this form of deception

:37:43.:37:50.

was acceptable. It is strictly speaking illegal, it is insurance

:37:51.:37:54.

fraud. I do not think we know, it is difficult to get an understanding of

:37:55.:37:58.

how common it is. We can only get people's view on it, whether they

:37:59.:38:02.

think it is acceptable. There is also an issue of people not

:38:03.:38:06.

realising it is illegal, a lot of people would be doing something

:38:07.:38:09.

illegal which is something you would not expect to be that high. There is

:38:10.:38:19.

something that we need to be raising awareness. Does that have a

:38:20.:38:22.

significant reduction on people's premiums? I am afraid I do not know

:38:23.:38:31.

the percentage reduction. We have talked a bit about telematics, as

:38:32.:38:36.

one option. For reducing the cost of insurance the young people. What are

:38:37.:38:40.

some of the challenges that you think there are in getting young

:38:41.:38:44.

people to take this on board, what are the barriers? The RAC report on

:38:45.:38:52.

motoring looked at public acceptance of telematics and other tracking

:38:53.:38:57.

type technologies. Back in 2010, over 50% of people said they opposed

:38:58.:39:02.

it, they do not want it at all. The most recent survey, in September

:39:03.:39:09.

last year, said 33% of people would oppose it. So there is now more

:39:10.:39:13.

acceptance and I'm telematics. I think it is because young people in

:39:14.:39:17.

particular see the benefit of what they are getting as a result of

:39:18.:39:21.

buying into that process, they are getting a good discount on the

:39:22.:39:23.

insurance because it is based on how they drive as an individual, not the

:39:24.:39:28.

fact that they are a young person. It is an individually tailored

:39:29.:39:31.

system, rather than an overarching thing. The only point I would make

:39:32.:39:40.

is that it is about raising awareness of all the things that are

:39:41.:39:45.

available out there. And demonstrating that they can work.

:39:46.:39:56.

So, in terms of the impact that a cap on car insurance would have on

:39:57.:40:03.

young drivers, what impact do you think it would have on drivers'

:40:04.:40:11.

behaviour? I think that is an interesting question. It would be

:40:12.:40:14.

interesting to get research to understand what impact it would

:40:15.:40:20.

have. I suppose regular insurance as it stands at the moment, if you have

:40:21.:40:25.

got a very expensive insurance product that you are paying for, it

:40:26.:40:29.

would not affect your behaviour because you have paid for it

:40:30.:40:31.

regardless. So a cap would be similar. It seems to be the

:40:32.:40:36.

telematics insurance and has the most potential to influence

:40:37.:40:42.

behaviour because it is all about providing feedback to the driver and

:40:43.:40:45.

the parent. Many insurance companies, as part of the package

:40:46.:40:52.

the parent has access to the records and can talk about them. I think

:40:53.:40:57.

that would have more of an impact on the mobility side of young people

:40:58.:41:05.

having the affordability to drive, it would not have an impact on

:41:06.:41:11.

safety, and it could make it more expensive for other drivers because

:41:12.:41:14.

the cost has to come from somewhere. Do you have examples as where a cap

:41:15.:41:23.

has been incremented abroad, or is it just telematics? There are a

:41:24.:41:28.

number of different examples abroad, we have got a report coming out soon

:41:29.:41:32.

which is going to look at a cap on insurance markets for young drivers

:41:33.:41:37.

in France, Germany, Spain, Netherlands and Sweden. In France,

:41:38.:41:41.

it is interesting because it is quite a rural area, sparsely

:41:42.:41:44.

populated, they note the importance of getting people access to

:41:45.:41:50.

employment. So they have a young driver insurance and then I premium

:41:51.:41:55.

of that of 100% then each year it goes down, the second year is 75%,

:41:56.:42:00.

then 50%, then 25%, and if you do not have any accidents you get a

:42:01.:42:07.

coefficient added that it reduces. It is quite regulated environment.

:42:08.:42:13.

The first insurance they get is the same is that one else but then it

:42:14.:42:17.

has a young driver aspect added onto it. Again it is on the price of the

:42:18.:42:22.

vehicle. In Germany, if everybody on the vehicle insurance, if someone on

:42:23.:42:29.

the insurance is under 25, they based the insurance on that

:42:30.:42:35.

individual. If everyone is over 25, it is on that individual. So it is

:42:36.:42:38.

priced on the vehicle but it is looking at the individual as well.

:42:39.:42:43.

There are interesting concept and ideas which are more about

:42:44.:42:47.

regulating how prices are capped. Do you find in the UK there are

:42:48.:42:51.

significant differential insurance rates based on geography, or is it

:42:52.:42:59.

predictable for a young person, or is it different depending on how

:43:00.:43:06.

they have shopped around? You talk about a regulated model, Alice,

:43:07.:43:11.

presumably, is the opposite. -- hours presumably if the opposite. In

:43:12.:43:20.

other countries, the insurance is usually done through brokers and

:43:21.:43:23.

some do not have comparison sites at all, and in the UK it is more

:43:24.:43:28.

competitive and it is more about risk. We have not researched on how

:43:29.:43:34.

it this is by area but we know it is location -based. I think the West

:43:35.:43:39.

end up with quite high figures. It is geographically specific because

:43:40.:43:45.

thinking about theft of the vehicle and the extent of cost to repair,

:43:46.:43:51.

that is different throughout the country. So you could argue of that

:43:52.:43:59.

young people of some of the most challenging communities, they can

:44:00.:44:01.

find access to car insurance even more difficult than those who live

:44:02.:44:07.

in more affluent part of the country, compounding social

:44:08.:44:13.

inequality? I think that is the case potentially, but it is for

:44:14.:44:17.

everybody. Thank you very much indeed for your evidence and for

:44:18.:44:19.

answering our questions, thank you. Welcome to the committee, could you

:44:20.:44:29.

give us your name and organisation? I and Simon Allsop from Aviva.

:44:30.:44:38.

Graeme Trudgill, British insurers Association. Nick Moger, Marmalade.

:44:39.:44:45.

James Dalton from the Association of British insurance. Some people have

:44:46.:44:50.

told us they are paying over ?4000 for car insurance, young people, why

:44:51.:44:56.

should it be so high? If I talk about how car insurance premiums are

:44:57.:45:01.

made up. The insurance company will look at claims experience, history,

:45:02.:45:06.

and compare that the claims experience to the rating factors

:45:07.:45:10.

that we get on the drivers and that will include age, location, make and

:45:11.:45:16.

model of vehicle, driving experience, claims history, things

:45:17.:45:22.

of that nature. We compare the claims cost with those two work out

:45:23.:45:28.

what the relative factors are for working out factors and setting a

:45:29.:45:32.

premium to cover costs. The high cost of motor insurance for

:45:33.:45:39.

young people causes many difficulties. Do you think the

:45:40.:45:43.

insurance industry has any responsibility in that regard? I

:45:44.:45:47.

think we have a responsibility in the sense that we should be charging

:45:48.:45:51.

the appropriate premium for the risk the customer brings into the pool.

:45:52.:45:55.

So insurance is about collecting the premiums of the many to pay the

:45:56.:45:59.

claims of the few. That is the pool in principle, but in order to get

:46:00.:46:04.

into the pool, you need to pay an appropriate premium for the risk

:46:05.:46:08.

that you bring. So the danger would be if we couldn't charge an

:46:09.:46:11.

appropriate premium, then we would shrink the size of the pool and say

:46:12.:46:15.

we can only have drivers aged between 40 and 50 in the pool to

:46:16.:46:19.

make sure everyone is paying an appropriate premium for the risks

:46:20.:46:23.

they bring. Yesterday, the Justice Secretary announced a reduction in

:46:24.:46:29.

Piper sent to minors no .7%. It is Piper sent to minors no .7%. It is

:46:30.:46:39.

reported that is going to have a big impact on young drivers -- from 2/5%

:46:40.:46:52.

to -0.7. The single biggest factor that is driving higher large claims

:46:53.:46:56.

compared to other drivers is age and it has been widely reported by PWC

:46:57.:47:02.

that young drivers aged 18-22 would expect a ?1000 increase in their

:47:03.:47:07.

premium just from a single stroke of the Lord Chancellor's pen. So for

:47:08.:47:13.

people paying ?4000, it could go up to 5,000? From the assessment made

:47:14.:47:17.

by PWC, yes. You think that is acceptable? Isn't this going beyond

:47:18.:47:23.

the bounds of reasonableness? Jor want me to take that? The Lord

:47:24.:47:27.

Chancellor's decision is absolute madness. As you have rightly pointed

:47:28.:47:35.

out, add significant cost to the cost of the young drivers' car

:47:36.:47:40.

insurance premiums. As Simon has articulated, the PwC estimate was

:47:41.:47:48.

around ?1000. It is really important that this group of MPs, and I would

:47:49.:47:53.

urge you to grasp this issue and make very clear to the Lord

:47:54.:47:57.

Chancellor these significant impact that this is going to have on young

:47:58.:48:06.

drivers, and you have a petition of 180,000 people who indicated their

:48:07.:48:10.

concern at the cost of car insurance and I think all of the market

:48:11.:48:15.

estimates that have been put out of the past 24 hours would indicate

:48:16.:48:20.

that the Lord Chancellor's decision yesterday is going to bed car

:48:21.:48:22.

insurance the young drivers skyrocket. I don't get the whole

:48:23.:48:28.

madness point, because the whole idea of this is to make sure that

:48:29.:48:34.

people who are involved in serious accidents and need long-term care

:48:35.:48:37.

have enough return on their investments, so therefore it kills

:48:38.:48:42.

not giving a good enough return, something has to be done, but can I

:48:43.:48:46.

come back to the ?1000 question what it leads through to the concern

:48:47.:48:50.

about scaremongering. According to our documentation, the average cost

:48:51.:48:55.

of insurance is ?850 for a young group of drivers. So if we have got

:48:56.:49:00.

the differential that we actually need, because of the yield on

:49:01.:49:06.

Guilds, how on earth can it be over 44 young person's insurance coach

:49:07.:49:10.

Mark because you are only talking about a small number with larger

:49:11.:49:17.

claims. How can it be double the premium? The Lord Chancellor has

:49:18.:49:26.

announced a negative discount rate of -0.5%. What claimants do with

:49:27.:49:32.

their lump sum awards damages is known only to them, I can't tell you

:49:33.:49:38.

what they do with that in practice but my is that they do not go back

:49:39.:49:43.

into Government securities, for a whole range of reasons. But the

:49:44.:49:45.

supposition that they do, which is supposition that they do, which is

:49:46.:49:51.

what the Lord Chancellor has made, would end at a rate of -0.5% makes

:49:52.:49:58.

an assumption that those people making investments are investing in

:49:59.:50:01.

order to lose money, and that simply cannot be right. And this goes to

:50:02.:50:06.

your point about the differential. What we are asking you for and what

:50:07.:50:11.

we are asking the Lord Chancellor for is an urgent review of the

:50:12.:50:17.

damages act 1996, which sets the rate so that young drivers in

:50:18.:50:23.

particular are not forced to pay these extraordinarily high car

:50:24.:50:25.

insurance premiums, which is only going to get worse when the decision

:50:26.:50:31.

takes effect. My point here is that the best way for young persons' car

:50:32.:50:37.

insurance premiums to reduce is to make young drivers safer. Could you

:50:38.:50:40.

are somebody to provide some evidence to show how an ?850 premium

:50:41.:50:47.

can go up by ?1000 due to this factor? Can somebody provide a

:50:48.:50:52.

model? Because I would be concerned that young people are being ransomed

:50:53.:50:57.

in return for pressure on Government to change this policy, which is

:50:58.:51:00.

designed to make sure that people in serious accidents have enough care

:51:01.:51:03.

for the rest of their lifetime. So someone from your bureau could

:51:04.:51:05.

provide that information, I would be happy to take up the matter. Simon

:51:06.:51:15.

may have some comment on that. Why PWC, a firm that act as consultants,

:51:16.:51:19.

would put out something to scaremonger... Incredibly quickly

:51:20.:51:24.

and secondly, it is like anything in life, if we haven't got the

:51:25.:51:27.

information and see the methodology, why shouldn't we question it is

:51:28.:51:31.

accurate question mark the table and the range was from plus 2.5 and

:51:32.:51:39.

minors no .5, they selected a number from a table they had chosen.

:51:40.:51:46.

Do you accept that the increase is actually what is going to happen? A

:51:47.:51:55.

?1000 increase? It seemed like the right magnitude according to the

:51:56.:51:59.

calculations I have seen elsewhere. I think it is real. To be absolutely

:52:00.:52:03.

clear, I have huge sympathy for people who are trying to use their

:52:04.:52:07.

vehicle to get to and from work who are driving sensibly. As an insurer,

:52:08.:52:12.

when you are presented with a risk, an 18-year-old, to be able to

:52:13.:52:15.

differentiate those people who want to drive their vehicle from and to

:52:16.:52:20.

work or college and those who want to drive it with six people rammed

:52:21.:52:23.

in it at three o'clock in the morning is impossible without

:52:24.:52:29.

interventions such as the telematics boxes that marmalade are presenting.

:52:30.:52:36.

So you are saying young people should take the brunt of this

:52:37.:52:41.

change? I am not saying that at all, I would rather the change hadn't

:52:42.:52:44.

happened at all but what I'm saying is people who are coming into the

:52:45.:52:48.

insurance pool should pay a premium appropriate to the risk they bring.

:52:49.:52:54.

I just wanted to follow up to one of the very end questions we had on the

:52:55.:52:59.

figures and how we get these extremely high cost of 4,500. I am

:53:00.:53:06.

grateful for the tables as to the average premiums, average claims and

:53:07.:53:09.

the frequency in age groups but when I look at that, the youngest and

:53:10.:53:15.

riskiest group, the average premium, ?993, is a fraction of ?4500 that

:53:16.:53:20.

people have claimed, so how do we get to that and what is the actual

:53:21.:53:24.

range of premiums people are paying if the average is that and others

:53:25.:53:29.

are paying 4,500. Are they getting free insurance at one end and deals?

:53:30.:53:34.

As a follow-on to that, I will give it all at one time, the bit that

:53:35.:53:38.

interests me with the information we got from the EBI is the profit

:53:39.:53:44.

margin on the different age ranges that the companies make, is that

:53:45.:53:47.

consistent across all ages or is there a variation in that as well? I

:53:48.:53:54.

don't have information about the profit on particular lines of

:53:55.:53:56.

business, that would be very commercially sensitive information

:53:57.:54:02.

for each individual insurer. Going to your first question on averages,

:54:03.:54:07.

averages are by definition an average, so there will be people who

:54:08.:54:10.

pay lower car insurance premiums and people who pay higher. There are a

:54:11.:54:16.

whole range of ways that young drivers can reduce their car

:54:17.:54:20.

insurance premium. For example, they can drive smaller cc cars, they can

:54:21.:54:27.

spend a lot of time thinking about telematics and the increase uptake

:54:28.:54:31.

of telematics through mobile phone technology has helped reduce car

:54:32.:54:36.

insurance premiums for young drivers, but my point is the average

:54:37.:54:43.

is the average. We talked about this earlier, in the previous session,

:54:44.:54:48.

but the rate of reduction in risk with age is very significant. So in

:54:49.:54:52.

the age range we have got there, the 18-year-olds, at the beginning of

:54:53.:54:55.

the age range and of course there are 17-year-olds driving legally in

:54:56.:55:03.

cars, it goes down very quickly. Other things that reduce risk length

:55:04.:55:06.

of time driving, surpassing your driving test and not buying your

:55:07.:55:11.

first insurance on your own vehicle until a year later makes a huge

:55:12.:55:14.

difference to the premium you will pay, so that is why you are getting

:55:15.:55:20.

that shape in those averages. In terms of the average profit margin,

:55:21.:55:24.

Ike then I can't speak to the market, but I can make an

:55:25.:55:27.

observation about the market and that is that the motor insurance

:55:28.:55:30.

market has only made money as a market in years out of the last 20

:55:31.:55:36.

years and only Maka the late actually, some of those profits will

:55:37.:55:40.

be wiped out by yesterday's announcement -- and actually. The

:55:41.:55:43.

other fact is that the younger drivers, the market, if it is not

:55:44.:55:46.

telematics, is becoming smaller because more and more insurers are

:55:47.:55:49.

finding themselves unable to make any profit at all, even at those

:55:50.:55:54.

very large premiums. I think the difficulty the young drivers is the

:55:55.:55:58.

claims ratios there are ten times more likely to have an accident and

:55:59.:56:02.

for that accident to be more costly, so our members to give lots of

:56:03.:56:06.

advice as to why there are different averages you can hear and they would

:56:07.:56:10.

be about driving a more modern car with autonomous emergency braking

:56:11.:56:17.

and using telematics policies. Our latest ads show over 750,000 live

:56:18.:56:23.

policies exist with a telematics box or downloadable app and those are

:56:24.:56:27.

about 25% cheaper. When you are a young driver, our experts who work

:56:28.:56:37.

in telematics show that you are half as likely to have an accident in

:56:38.:56:41.

your first year of driving and ten times less likely in your first six

:56:42.:56:44.

months one of the recommendations we have in this committee is to

:56:45.:56:47.

consider having an IPT insurance tracks premium rate of zero for

:56:48.:56:51.

those young drivers that are prepared to have a telematics box in

:56:52.:56:57.

their car. An average premium of ?1500, the IPT rate having doubled

:56:58.:57:01.

over an 18 month period, is going from 6% up to 12%, meaning their IPT

:57:02.:57:07.

is going from ?90 to 180,000 we have done the cost benefit analysis with

:57:08.:57:11.

others in the industry and this shows that there is going to be a

:57:12.:57:15.

?212 million saving to Government over a seven-year period, about

:57:16.:57:21.

1,000 killed, serious injury and accidents could be averted if you're

:57:22.:57:24.

drivers could be given support in going to have a telematics box

:57:25.:57:28.

Allsopp so perhaps one recommendation we all could consider

:57:29.:57:32.

is zero rate IPT for telematics. And I think in the long-term, bearing in

:57:33.:57:36.

mind what massive affect the discount rate is having, it will we

:57:37.:57:41.

very helpful if the Chancellor in the budget next week was to agree to

:57:42.:57:45.

freeze insurance premium tax for this term our parliament because of

:57:46.:57:47.

so much pressure on young drivers and motorists. Included in the cost

:57:48.:57:58.

of telematics and insurance, there was the cost of the box, the cost of

:57:59.:58:04.

the software, is there at the 8020% on that? So for an average premium

:58:05.:58:10.

of ?1500, the Government is taking ?215. -- is their VAT of 20%. So

:58:11.:58:20.

young people really are being penalised by this, combination of

:58:21.:58:25.

the two, VAT and IPT on top of the VAT.

:58:26.:58:31.

Many of the respondents to our online survey fed back that they

:58:32.:58:35.

felt the high cost of car insurance for young people was often based on

:58:36.:58:41.

a stereotype, so I wonder what more the insurance industry could be

:58:42.:58:45.

doing to explain to the public why insurance is so high and also what

:58:46.:58:52.

more they could be doing to demonstrate to young people how they

:58:53.:58:55.

can reduce the costs of their insurance. I think our insurance

:58:56.:58:59.

brokers would be very keen to work with customers and explain how it

:59:00.:59:02.

works and the many things they can do to bring their costs down. The

:59:03.:59:06.

insurance industry collectively all pay towards the money advice

:59:07.:59:09.

service, which is part of our regulatory body, or connected to it,

:59:10.:59:14.

which is supposedly there to give insurance customers advice. That is

:59:15.:59:19.

being replaced by the single financial guidance body and the

:59:20.:59:22.

consultation that has just come out has no mention of insurance in it,

:59:23.:59:25.

so I think there is a lack of advice from Government when it comes to

:59:26.:59:29.

insurance but I think the industry are very keen to help and talk

:59:30.:59:34.

through all the things young drivers can do, telematics, dash cam is in

:59:35.:59:42.

your car, we have a find a broker service which helps over a quarter

:59:43.:59:45.

of a million people every year, including many young drivers, to a

:59:46.:59:50.

suitable broker who specialises in young drivers or telematics. So

:59:51.:59:54.

there is a lot we can do and we are very happy to work with you to do

:59:55.:59:58.

that. If I can add to that, one of the things the ABI has been

:59:59.:00:02.

campaigning for the many years is graduated drivers licenses, picked

:00:03.:00:07.

up in the previous panel. The evidence to support internationally

:00:08.:00:14.

the benefits of the introduction of them is overwhelming, it has been

:00:15.:00:17.

tried and tested in many jurisdictions under this is a

:00:18.:00:20.

publication from September 2012 that we produced, trying to campaign, to

:00:21.:00:25.

improve the road safety outcomes of young people, which, as a result,

:00:26.:00:29.

will reduce their car insurance premiums. It is absolutely critical

:00:30.:00:35.

as a piece of regulatory intervention to improve the

:00:36.:00:38.

catastrophic nature of some of the death and injury that we see on the

:00:39.:00:42.

roads and as I said, reduce car insurance premiums as a result of

:00:43.:00:43.

that. One of the things that we do is that

:00:44.:00:54.

we ensure we have a parent and young driver on the policy so we can

:00:55.:00:57.

afford both of them if they both drive badly. We have a team that

:00:58.:01:04.

specialises and looking at the journeys and if both drivers are

:01:05.:01:10.

driving badly, they can get together and talk about where the problems

:01:11.:01:13.

lie. We have also been doing learner driver insurance. We give reductions

:01:14.:01:17.

for that. The more practice they get, when they are learning to

:01:18.:01:21.

drive, the better. I had accompanied the other day with some driving

:01:22.:01:24.

instructors who are insisting that that pupils to 2000 miles of private

:01:25.:01:34.

practice in addition to lessened and they have proven that the accident

:01:35.:01:38.

levels are less. Practice, practice, practice, these one-week intensive

:01:39.:01:45.

courses, if I had my way, I would stop them immediately. You can pass

:01:46.:01:50.

a test in a week but you have got no experience and those people are

:01:51.:01:57.

having accidents. It is the most important factor, on whether they

:01:58.:02:01.

are going to cause accidents. The thing I observed within drivers in

:02:02.:02:06.

their driving training is more up-to-date than yours on mine, their

:02:07.:02:10.

reaction and reflexes are better but we often see for worse experiences.

:02:11.:02:17.

So part of that is explained by our experience of different road

:02:18.:02:19.

conditions, we are used to it, but a lot of it is the attitude, how you

:02:20.:02:23.

choose to pay by the wheel. The best way is to understand that by

:02:24.:02:31.

observing the driving by some kind of telematics device fitted to the

:02:32.:02:36.

phone or vehicle. I am interested in what you are saying, we do therefore

:02:37.:02:42.

recommend more experience be required before you pass a test?

:02:43.:02:48.

Without any shadow of a doubt. Like getting a pilot license, you need

:02:49.:02:54.

your driving hours? Yes, this group of driving instructors are refusing

:02:55.:02:57.

to take on pupils under the parents agree. Agree to the child doing the

:02:58.:03:04.

minimum they said 2500 miles of practice. Obviously, that creates

:03:05.:03:11.

difficulties for young people that do not have parents that can provide

:03:12.:03:16.

that support. True, true, but at the end of the day, they would rather

:03:17.:03:21.

not have the children maimed or killed, that is the point. The pilot

:03:22.:03:23.

entry killed, that is the point. The pilot

:03:24.:03:32.

-- we have had evidence saying that the premium tax is regressive on

:03:33.:03:35.

young people, we know that you agree, I wanted to see if you all

:03:36.:03:41.

agreed with the suggestion that there is a case for amending the

:03:42.:03:44.

insurance premium young people tax rate. Yes. Absolutely and it is

:03:45.:03:58.

certainly regressive. We have already had evidence on the relation

:03:59.:04:09.

that telematics can have on reducing premium tax, have you had a thought

:04:10.:04:12.

on how that might impact on all young drivers, both those who agree

:04:13.:04:19.

to get the telematics and therefore get potentially a reduction in

:04:20.:04:22.

insurance premium tax, and the general market for young people,

:04:23.:04:25.

those who do not have telematics devices? Insurance is about

:04:26.:04:35.

risk-based prices, so the evidence that is presented to you, you will

:04:36.:04:38.

then feed the premium back. If they do not have the telematics box, they

:04:39.:04:42.

will have a standard premium, but those who are prepared to moderate

:04:43.:04:47.

their driving behaviour, not break the speed limit, they would be

:04:48.:04:50.

awarded with a cheaper rate because that risk is reduced. The claims

:04:51.:04:54.

will be lower. We do not need to collect that amount of premium. We

:04:55.:04:57.

do not see any negative effects on those drivers that are not choosing

:04:58.:05:07.

to go to telematics. We looked at the figures every year, there is a

:05:08.:05:15.

40% increase on a year ago, so I think the spy in the car words that

:05:16.:05:22.

the only male uses, I think that is passed. -- that the Daily Mail

:05:23.:05:29.

users. I think more and more children use it. And I think parents

:05:30.:05:34.

like it because they can look at the dashboard and see how the child is

:05:35.:05:37.

driving and they are prepared to pay the premium. I think it is

:05:38.:05:40.

responsible and it has definitely become more popular. One of the

:05:41.:05:45.

things to emphasise is that the public policy outcome that we should

:05:46.:05:53.

the -- we should be striving to get here is to improve the young

:05:54.:05:57.

people's Mac driving. Telematics is one way of getting that end point.

:05:58.:06:04.

We should not lose site of making sure the get to that end point to a

:06:05.:06:10.

whole range of policy interventions. The increase of telematics,

:06:11.:06:14.

absolutely, but let's get to the end point of improving road safety

:06:15.:06:17.

outcomes. The absolutely clear international evidence is through

:06:18.:06:20.

the introduction of graduated driving licensing.

:06:21.:06:24.

The insurance sector also always says that the high cost of premiums

:06:25.:06:31.

is to do with fraud. Our young people being unfairly penalised? How

:06:32.:06:36.

much of the premium charge to young people is to do with fraud that they

:06:37.:06:40.

have committed rather than fraud in the whole sector generally? Fraud is

:06:41.:06:48.

a significant costs and the way that fraud gets allocated in a premium is

:06:49.:06:51.

similar to the way that claims cost allocated. You associated with the

:06:52.:06:58.

risk factors that people bring. You do not seek propensity for fraud

:06:59.:07:02.

between customers who are 18 to 25 other than the fraud that the RAC

:07:03.:07:08.

foundation talked about, fronting, Mr presenting risk. And often that

:07:09.:07:14.

-- misrepresenting risk. And that is often inadvertent, think Mum as the

:07:15.:07:22.

main driver and overtime it becomes the child's vehicle. In deliberate

:07:23.:07:28.

fraud, cash for crash for example, we do not see that associated with

:07:29.:07:31.

young drivers. Are you saying that the cost of insurance premiums for

:07:32.:07:36.

young people, there is no evidence that that is his due to fraud in

:07:37.:07:39.

your car collisions? There will be some fraud in there but the

:07:40.:07:45.

propensity for fraud is in other age groups. Is that related to fraud

:07:46.:07:50.

amongst young drivers or more generally? Young drivers are not

:07:51.:07:53.

that associated with fraud. If you look at the cases where fraud is

:07:54.:07:57.

found it is typically people involved who are over the age of 25.

:07:58.:08:03.

We have found the same thing for applications for 17, 18,

:08:04.:08:06.

19-year-olds, fraudulent applications are very low. I am

:08:07.:08:09.

trying to establish whether those high premiums for young people

:08:10.:08:13.

include an element for fraud to do with young people rather than fraud

:08:14.:08:19.

generally. It will include an element of fraud that is to do with

:08:20.:08:25.

young people, not other drivers. The biggest cost are fraudulent whiplash

:08:26.:08:28.

claims from claims management companies who are not currently

:08:29.:08:32.

regular kid by the SCA but are due to be and we are waiting for the

:08:33.:08:36.

bill so I would encourage you to get that. -- they are not currently

:08:37.:08:42.

regulated. That whiplash claim cost is spread over everyone of every age

:08:43.:08:46.

range. So we are very happy to see some bills introduced which will aim

:08:47.:08:52.

to reduce the cost of fraudulent claims. In the past, the insurance

:08:53.:08:56.

industry had said that if changes were made in relation to whiplash

:08:57.:09:00.

claims, premiums would come down and has not happened. It has not become

:09:01.:09:05.

an act yet. This was promises made before when other changes were made.

:09:06.:09:08.

The transport committee look at this issue and a clear promise was made

:09:09.:09:14.

by the insurance sector that if certain recommendations were

:09:15.:09:16.

followed the cost of the premiums would come down and that has not

:09:17.:09:22.

happened. We saw the sentencing and punishment of offenders act, when

:09:23.:09:25.

those changes were made, there were some changes to read insurance

:09:26.:09:30.

premium, which was at -- Road insurance premiums which was

:09:31.:09:34.

downwards, but since then whiplash claims have accelerated and the cost

:09:35.:09:39.

on the industry has been enormous. What we are seeing, and what George

:09:40.:09:44.

Osborne previously announced in the budget for that Karren Brady would

:09:45.:09:50.

do an independent review of the claim management companies, that is

:09:51.:09:57.

coming to fruition. The main changes that can be made to costs has not

:09:58.:10:05.

been in acted. Aviva has said publicly that would be ?40 of

:10:06.:10:13.

people's insurance, and once that is enacted, that will happen. We will

:10:14.:10:17.

see if it happens. I understand in the US, because the

:10:18.:10:21.

insurance market is more heavily regulated, vices are based on

:10:22.:10:30.

actuary evidence, so there is a requirement that the price follows

:10:31.:10:33.

the risk which is determinative whereas the UK has not got this. The

:10:34.:10:37.

difficulty is, coming back to the difficulty is, coming back to

:10:38.:10:42.

employment checks, we think something may happen but it does

:10:43.:10:44.

not, because you come up with the price without having to demonstrate

:10:45.:10:47.

it is absolutely following risk. That is why I come back to this

:10:48.:10:52.

point, why does it cost so much for young people. That is true, my

:10:53.:10:56.

understanding is that in most states the price is regulated and the way

:10:57.:11:03.

to get the costs decided is to prove that the statistics are working as

:11:04.:11:08.

required. Shouldn't we have the same thing in this country so we can

:11:09.:11:12.

absolutely tell that the price is based on risk as evidence, rather

:11:13.:11:17.

than your industry saying this is the cost? I think there is a lot of

:11:18.:11:21.

evidence that price regulation is a barrier to competition in those

:11:22.:11:24.

markets. In the UK with price comparison website, we have the most

:11:25.:11:28.

competitive insurance market in the world and that in itself will act as

:11:29.:11:32.

the pressure valve which make sure that nobody tries to make too much

:11:33.:11:36.

profit on young drivers. If anyone can see a way of ensuring driver who

:11:37.:11:42.

is young more cheaply, they will bring down the price, which is why

:11:43.:11:49.

the telematics have been so successful, as soon as someone did

:11:50.:11:52.

it, the prices came down and the market starts to grow and become

:11:53.:11:57.

competitive. It taken to another point, because we do not know. In

:11:58.:12:04.

years come by, it is assumed that young drivers are risky because they

:12:05.:12:11.

are inexperienced and more foolish and less mature. And now older

:12:12.:12:15.

drivers playing around with gizmos inside their cars, more technology

:12:16.:12:19.

around you, strikes me that our aged traffic has changed and we are all

:12:20.:12:24.

more naive. But it is still weighted towards young people

:12:25.:12:26.

disproportionately. Because we cannot get to the evidence on it, I

:12:27.:12:30.

struggle to understand whether it is the case or not. I do not dig it is

:12:31.:12:37.

disproportionate, the risk is, the premium goes where the risk is

:12:38.:12:39.

presented. I take your point that a cart as an environment is coming

:12:40.:12:44.

more distracting and that causes accidents but in terms of the data

:12:45.:12:49.

and what we see, we do not seek that older drivers are being distracted

:12:50.:12:52.

and having many more accidents. In fact the frequency of accident in

:12:53.:12:56.

general in the UK is coming down over time. The place where you see

:12:57.:13:01.

an increase in risk is at very old age is where it is difficult to

:13:02.:13:04.

predict where somebody will become less able to control their vehicle.

:13:05.:13:08.

Another point is that the cost of care long-term for a young driver

:13:09.:13:15.

for the next 50 years, it is going to cost an insurer much more than an

:13:16.:13:22.

older driver. That is a key factor on why it will cost so much more. In

:13:23.:13:27.

particular we have been discussing calls for a cap on current rents for

:13:28.:13:36.

18-25 -year-olds. -- on car insurance. Why do you think that is

:13:37.:13:41.

a bad idea? I think the cost will be hot on to other motorists which I am

:13:42.:13:44.

sure they would not agree with. When we looked at the online survey that

:13:45.:13:48.

this committee were involved in, we saw many respondents saying they

:13:49.:13:52.

they did not want the cost part onto them. We also believe that there is

:13:53.:13:58.

no incentive for risk management, so young drivers could get high-powered

:13:59.:14:03.

cars, drive badly, get convictions, and still get a cap premium which is

:14:04.:14:09.

not sensible. The other point is that some insurers would say it is

:14:10.:14:12.

not affordable, it will cost them far more in claims and they are not

:14:13.:14:16.

going to provide capacity for young drivers any more. That is very

:14:17.:14:24.

strong reasons from a perspective. Touching on telematics, you have all

:14:25.:14:27.

given anecdotal evidence about how telematics improve driver behaviour,

:14:28.:14:32.

particular in younger drivers, but what evidence exists? The Road

:14:33.:14:38.

safety foundation did some research with an insurance company and a

:14:39.:14:43.

broken member, and the evidence they have had has produced a report which

:14:44.:14:47.

I have -- a member who is a broker, it hasn't juiced a report I -- has

:14:48.:14:55.

produced a report J have here. There is a 40% reduction in crash risk

:14:56.:15:03.

which is most welcome. The cost benefit analysis was done and it

:15:04.:15:08.

showed that if you could reduce the rate to zero over a seven-year

:15:09.:15:13.

period, there was a ?699 million benefit for that. Because of the few

:15:14.:15:21.

incidents, 1000 fewer serious incidents, the cost for the

:15:22.:15:26.

government losing taxes ?487 million so there is a net profit for the

:15:27.:15:31.

government. There is accosted analysis. I know that Marmalade has

:15:32.:15:33.

some positive statistics as well. One in 16 have an accident in the

:15:34.:15:43.

first six months, rather than the one in five over the national

:15:44.:15:50.

survey. We send e-mails out at 2.00am so they have it when they

:15:51.:15:55.

wake up and found both drivers registered on the policy, and can

:15:56.:16:00.

say if one is driving badly. 99% of the time we are getting support from

:16:01.:16:06.

the parent and it is sorted out. Occasionally we don't, some parents

:16:07.:16:10.

seem oblivious to what their little darlings are doing. One recently

:16:11.:16:14.

told us that the system was not calibrated to her son's style of

:16:15.:16:22.

driving! But what was worse, 48 hours later, he wrote off two cars.

:16:23.:16:26.

Oh, dear. This is positive but what I would be

:16:27.:16:32.

interested to know is why, according to the survey, 46% of those that had

:16:33.:16:38.

telematics so a decrease or reduction in the insurance premium?

:16:39.:16:44.

Ours are significantly reduced. On renewals, we are down to an average

:16:45.:16:49.

of 40% of the first year's premium, we have gone up to 66% in some

:16:50.:16:54.

cases. So we do look at how they have been driving and work it out at

:16:55.:16:58.

the end of the year. If you are driving well, the premium is down.

:16:59.:17:02.

. There are three times of the system. The mileage base, the lower

:17:03.:17:09.

miles, the curfew based system, where if you drive at night it costs

:17:10.:17:14.

more and the behaviour base, the acceleration, the breaking and G

:17:15.:17:17.

force and general behaviour over speeding. It depends on the system

:17:18.:17:23.

you have as to what is suitable. If you run a night shift you don't want

:17:24.:17:29.

the curfew policy. But I agree with Nick, in that the telematics, they

:17:30.:17:33.

show a higher success rate than the one you mentioned. They give the

:17:34.:17:39.

customers the discounts for the better driving ratio.

:17:40.:17:44.

The fact you have chosen to have the box in the vehicle, it is means that

:17:45.:17:50.

your starting premium is lowered. So for the curfew, that is fixed for

:17:51.:17:54.

the policy year unless you break the curfew. That is part of the deNamic

:17:55.:17:59.

that is happening there. We found we did it to begin with,

:18:00.:18:05.

and we found that kids were rushing back in the evening. We found a

:18:06.:18:11.

number of young people who are trying to get part time jobs to pay

:18:12.:18:15.

for the cars to pay for insurance. They are working in restaurants in

:18:16.:18:20.

the evening, McDonald's, they have to get home. We found they are more

:18:21.:18:26.

responsible. The once we found the worst are the once where the parents

:18:27.:18:31.

give them everything on a plate. What work is being done so that

:18:32.:18:37.

telematics does not penalise part time workers, people working night

:18:38.:18:42.

shifts, nurses, careers who don't have a choice to work night shifts.

:18:43.:18:48.

We don't penalise for that at all. Sadly, many still do.

:18:49.:18:50.

Many do, yes. There are insurance policies selling

:18:51.:19:06.

fewer units, the behaviour ones give the driver control over elements of

:19:07.:19:09.

their people yum, which is what we are after.

:19:10.:19:15.

What we found is that the level of single vehicle accidents by having a

:19:16.:19:21.

telematics box, looking into the acceleration, going into corners,

:19:22.:19:26.

heavy braking, stopping that reduces single vehicle accidents hugely.

:19:27.:19:31.

Three years ago we had 16 in a year, the following year we had one.

:19:32.:19:43.

That issue about driver behaviour, I had an advanced driving lesson to

:19:44.:19:46.

teach me to drive economically, to get the most out of fuel that

:19:47.:19:52.

involved things like slowing down, reading the traffic in advance,

:19:53.:19:57.

making sure I did not speed up and slap on the brakes at the Lewis

:19:58.:20:00.

Hamilton, all of those sorts of things but if we were to do more in

:20:01.:20:05.

the driving instruction, before people pass their tests, to teach

:20:06.:20:10.

them more about the economics of driving, given that fuel is a

:20:11.:20:15.

significant cost in driving, would that assist in reducing the number

:20:16.:20:20.

of accidents especially amongst young drivers by improving their

:20:21.:20:23.

behaviour as they are understanding the machine that they are driving

:20:24.:20:29.

more and more sympathet click. It would but they don't tend to look

:20:30.:20:34.

at the cost that much. That's why we are here? Yes but they don't look at

:20:35.:20:40.

the cost of the future. You and I know if we drive sensible, you get

:20:41.:20:44.

more miles to the gal on but many don't take that into consideration

:20:45.:20:48.

as much as we would like them to. You are right. A member of ours from

:20:49.:20:57.

the AA, who does drivers courses, can show a speed awareness course,

:20:58.:21:00.

the learnings from those are fantastic. We believe that if they

:21:01.:21:04.

could be put into the driving test process, it would help.

:21:05.:21:08.

Northumberland police ran a survey on people that are taking the

:21:09.:21:12.

courses and erevisiting them a year later to see if it has stuck. And

:21:13.:21:19.

the frequent results are that 78% of the people on the course are more

:21:20.:21:26.

likely to keep to the speed limit. 91% learn something new and 96% say

:21:27.:21:30.

that the courses should be offered to others. Our view is not to offer

:21:31.:21:35.

it after they have offended and risked lives but to put it into the

:21:36.:21:39.

driving test to prepare people before they are out there, that will

:21:40.:21:45.

mean fewer claims and cheaper premiums for the young drivers.

:21:46.:21:52.

The RAC Foundation Suggs that premiums could be reduced by

:21:53.:22:01.

introducing driving education -- RAC fun deportation suggestion that

:22:02.:22:05.

premiums could be reduced by introducing driving education, what

:22:06.:22:08.

is your thought on that? It is important for the committee to focus

:22:09.:22:12.

on the quality of the learning that takes place before the test, and the

:22:13.:22:17.

number of accidents that happen afterwards. The evidence suggests

:22:18.:22:22.

that we don't have a robust testing and training system in this country.

:22:23.:22:28.

So picking up the RAC's point and to the nub of your question, I think we

:22:29.:22:32.

must grapple getting a driving test that is fit for purpose, that

:22:33.:22:37.

exposes young people to the variety of different driving conditions that

:22:38.:22:42.

they are likely to experience, especially in the first six months

:22:43.:22:47.

post passing their test when we know that they are most likely to have an

:22:48.:22:53.

accident. So getting the test right, challenging them in the test, to

:22:54.:22:58.

expose them to the raft of driving conditions is critical.

:22:59.:23:04.

And a consequence consequence is allowing people to drive on a

:23:05.:23:14.

younger age but driving with the education post qualification.

:23:15.:23:18.

And we spoke about a driving licence, how much could, or should a

:23:19.:23:23.

young driver expect to save on their car insurance by taking such a

:23:24.:23:29.

course? . There is a document here from 2012, I think from memory we

:23:30.:23:34.

were talking about a 20% reduction on the average premium. So that is a

:23:35.:23:41.

significant cost saving when the premiums are so high.

:23:42.:23:51.

Alt Christmas we were in Israel, we were visiting a company, if I pull

:23:52.:23:59.

out of a lane without indicating, there are sirens that go off in the

:24:00.:24:08.

car. What cost savings could younger people have if they have those

:24:09.:24:14.

alarms in the cars? It is recognised by the industry. The car group give

:24:15.:24:24.

ratings to the car. Where there are vehicles fitted with certain

:24:25.:24:29.

technologies, emergency braking, they tend to rate the car groups and

:24:30.:24:36.

that is reflected in the premium. It is taken into account. It is in the

:24:37.:24:42.

newer vehicles, and the more promotion of that, the more support

:24:43.:24:45.

we can give. And the brand I mentioned, Mobili,

:24:46.:24:51.

there can be a retro fit, where it does not brake for you but can give

:24:52.:24:57.

you a warning, which the evidence suggests, that is helpful to cause

:24:58.:25:06.

less damage as possible. Will this reduce the premium? It is

:25:07.:25:12.

something it is harder than if it is fitted from new. As you must be sure

:25:13.:25:18.

as to how and who has fitted it. But there are insurance brokers who

:25:19.:25:23.

consider that. Dash cams and such, so it is something that we can help

:25:24.:25:28.

with. But the problem with that is it puts the cost up. The insurance

:25:29.:25:35.

premium may come down but they have had to pay ?1,000 to get the

:25:36.:25:38.

technology. How much could the premium come

:25:39.:25:43.

down? I don't know. But if it came down by 10%, you are saving on

:25:44.:25:52.

?4,000, you are saving ?400 but it costs ?1,000 for the technology.

:25:53.:25:59.

In four or five years' time it will be not a bolt on but an essential

:26:00.:26:05.

item, and I suppose that the point is will we see the insurance

:26:06.:26:11.

premiums fall or is it something that will be built into the price?

:26:12.:26:16.

There is a package with the manufactures where they give us a

:26:17.:26:19.

discount that pays for the insurance. Those cars with all of

:26:20.:26:23.

this on, the cost of the insurance is considerably less.

:26:24.:26:30.

We are seeing that frequency of coming down that is great. Of course

:26:31.:26:34.

if the cost of paying the claims is going up, that is an off setting

:26:35.:26:38.

factor. Or like the previous promises that

:26:39.:26:42.

the sector made that something was going to come down, it didn't, it is

:26:43.:26:47.

because another factor went up? If we were making money in the market,

:26:48.:26:52.

I would have sympathy but we are not.

:26:53.:27:00.

Mrs Olsson? The really important thing to remember is that the

:27:01.:27:02.

technology that you are talking about tends to be in cars at the

:27:03.:27:08.

higher end. Those are the cars that young drivers tend not to be

:27:09.:27:13.

driving. As time goes on, you will see those cars entering the fleet as

:27:14.:27:19.

they are sold on to second-hand cars and those young people will drive

:27:20.:27:24.

the cars with that technology and the premiums will reduce as a

:27:25.:27:29.

result. But at the moment those cars are at the higher end of the market.

:27:30.:27:38.

A new fiesta still costs ?14,000, the cars with the technology it is

:27:39.:27:43.

about ?21,000. That is a lot of money for a young

:27:44.:27:46.

person. It is but it is all relative. It

:27:47.:27:52.

will come down. I want to get this on the record

:27:53.:28:08.

that the person that created the petition, said: Why don't we make

:28:09.:28:14.

the drivering test better? What are your thoughts on that. I agree. That

:28:15.:28:20.

issue about semiautonomous vehicles, I don't think we will have them as

:28:21.:28:27.

you will never pay out on them. But the if we are to have the

:28:28.:28:33.

semiautonomous vehicles you must have done some research and market

:28:34.:28:37.

research into what the impact that is going to be on your market?

:28:38.:28:43.

Inevitably, once these cars become safers and there are fewer

:28:44.:28:47.

accidents, so what assessment have you made of the impact of

:28:48.:28:51.

semiautonomous vehicles on your market? There is lots of evidence to

:28:52.:28:56.

say that the utility of motoring insurance as we see it will be

:28:57.:29:04.

reducing over time. The timescale is the very first autonomous vehicle,

:29:05.:29:09.

avoiding accidents, could be five years away at the very top end, then

:29:10.:29:14.

another ten years to go through the car pool to the lower models and

:29:15.:29:21.

another 10 years for a replacement of vehicle, so that sort of

:29:22.:29:27.

timescale of 25 years. But what will also happen, rather than people

:29:28.:29:31.

being worried about accidents killing and injuring people, and may

:29:32.:29:38.

that day come quickly, people are worried about getting to one place

:29:39.:29:43.

in a certain of time, and the nature of all of that will change in 25

:29:44.:29:46.

years. That is interesting. So, basically,

:29:47.:29:54.

if you were in charge of the Government and heaven if forbid if

:29:55.:29:59.

the insurance companies were in charge of the Government but what

:30:00.:30:08.

would you do for the premiums to be reduced for young people? We have a

:30:09.:30:16.

plan for young drivers with telematics, the improvements to the

:30:17.:30:22.

driving tests as mentioned. Greater promotions of the driver advance

:30:23.:30:27.

systems, promotions from the single guidance body from the Government.

:30:28.:30:36.

Advanced driving courses. And getting the whip lash bill through,

:30:37.:30:41.

that will have a massive effect on the premiums. The discount rate that

:30:42.:30:46.

we saw yesterday, that must be looked at and reviewed. And finally,

:30:47.:30:54.

the insurance form taskforce had 26 recommendations to reduce insurance

:30:55.:30:57.

fraud and we need Government to help work us through with that. What can

:30:58.:31:03.

the insurance sector do? It is recognising all of these things. We

:31:04.:31:08.

are sitting with the Government groups with the Department for

:31:09.:31:14.

Transport, the Treasury, giving new products for discounts for

:31:15.:31:17.

autonomous emergency braking and telematics. So the insurance

:31:18.:31:21.

industry is in 2 with the Government, this is a public/private

:31:22.:31:26.

partnership to get the premiums as competitive as we can for the young

:31:27.:31:28.

drivers. Thank you very much. Order. Order.

:31:29.:32:00.

Order, order, thank you very much for coming to see us. As you can see

:32:01.:32:06.

by looking in our direction, the whole committee without exception is

:32:07.:32:11.

operated take

:32:12.:32:12.

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