The Insurance Industry and Road Safety: Current and Future Policy Priorities
[Check Against Delivery]
The insurance industry has a unique and important role to play when it comes to road safety. Understanding and mitigating risks, is of course, the business of insurance.
And, by seeing at first hand the scale and severity of road crashes, insurers have built up an in-depth understanding of the key risks impacting a wide-variety of different road users.
While the fundamental role of insurers is to price risk - charging an appropriate premium to reflect the risk posed - it is the obligation of a responsible industry to support the economy and society by acting collectively to help address these issues.
Nowhere is this more important than road safety and as an industry we are committed to affecting real and meaningful change to make our roads safer for all drivers.
The ABI
Today I will outline some of the work that the industry is presently doing to improve road safety but first I will outline the role of the Association of British Insurers.
The ABI represents the collective interests of the UK’s insurance industry.
The Association speaks out on issues of common interest to our members and helps to inform and participate in debates on public policy issues. Indeed, many of the issues that preoccupy policymakers directly concern insurers.
We are often asked why motor insurance premiums have seen increases in recent years and why premiums have been particularly high for certain types of drivers. While I’m not here to talk about it today, many of you will know that this is due to the combination of substantial claims inflation - driven largely by the UK’s compensation culture - and poor underwriting losses and investment returns; the result of an unstable economic environment.
However, as we have seen from a number of recent premium trackers - including the ABI’s - the cost of car insurance is coming down, mainly as a result of the recent reforms to the civil litigation system and a concerted effort to crack down on fraudulent and exaggerated claims.
While we are absolutely committed to reforming the motor insurance market and stripping out unnecessary costs, ultimately, for all drivers, the key way to lower their premiums is to reduce their crash risk.
Young drivers
Nowhere can this be seen more clearly than in the first road safety issue I will discuss today, the poor safety record of young drivers.
With young drivers grossly overrepresented in the industry claims statistics, it should come as no surprise that we are particularly interested in improving their appalling road safety record.
The figures speak for themselves with the most recent data showing that:
- Nearly a quarter of all car drivers who died in 2012 were young drivers - this is despite the fact people aged between 17 and 24 make up only around 8 per cent of all driving licence holders in Great Britain
- 40% of 17 year old men have a crash in their first six months of driving
The reality is that the biggest single cause of accidental death amongst young people is getting in a car and dying in a crash.
We have always approached the young driver problem from a road safety perspective, not a financial one. The key outcome we should all be aiming for is to improve the safety of young drivers by improving the way they learn to drive. That their insurance premiums will reduce as a result should be a secondary consideration.
However, we recognise that motor insurance is a compulsory purchase.
We recognise that the ability of young people to drive is key to their social and economic participation in society. And we recognise that in tough economic times, relatively high premiums for young drivers are a cause of real concern.
While we’re supportive of any measures that are proven – and I emphasise proven - to improve the road safety of young drivers, we strongly believe that the single most effective measure the UK could adopt is the introduction of Graduated Driver Licencing.
As you will know, this method is a way of allowing new drivers to build driving experience under low risk conditions.
A minimum learning period of one year, followed by a short period of restrictions will provide young drivers with strong encouragement to obtain plenty of practical experience.
A six-month period of restrictions follows.
Firstly, the newly qualified driver is unable to drive with passengers under the age of 21 who are not immediate family because the presence of young passengers in a car can both distract young drivers and encourage them to drive in a more risky way.
Secondly, the night-time restriction is because numerous studies have clearly demonstrating that driving during the night increases the crash risk among young drivers for a variety of reasons including driver fatigue, lack of driving sustained night time driving experience and recreational driving at night.
Lifting these restrictions after 6 months will ensure the young driver has built up the skills and experience required to drive on their own.
Exemptions will apply to the restrictions, such as if a young person needs to go to night-time study or employment during the night.
The international evidence that GDL works is overwhelming and the recent Transport Research Laboratory study into GDL – which was commissioned by the DfT – is unequivocal in its support for it concluding that the case for introducing Graduated Licencing in the UK is compelling.
It’s not just GDL we’re supportive of. The role that telematics-based products can play shows real promise.
These policies use technology to monitor driver behaviour, often adjusting premiums or providing other incentives based on that feedback. And pay-how-you-drive policies offer young people more choice in the insurance products they can purchase.
For those young drivers who opt to have their driving behaviour monitored, the technology has been proven to reduce the cost of their car insurance.
However, to what extent it changes the attitude of all road users – as opposed to those drivers who self-select into using the technology - remains to be evaluated.
That’s why we’re pleased that the Government has decided to review the evidence.
But, given the current take up of telematics, the time needed to put together a robust research project and the time needed to carry out a effective analysis, it’s not inconceivable to suggest that DfT are calling for research that could take up to10 years to produce an answer.
Set against the fact that GDL is here, right now, and works, it is very disappointing that its introduction is not being considered.
GDL is based on sound evidence and to ignore that evidence by failing to act is resulting in catastrophic results for many young drivers and high premiums for far too many.
Evidence is important as almost every week, we’re asked by various road safety initiatives if our members will reduce their insurance premiums for individuals who have attended some form of road safety course.
The idea that the key to improving young driver safety is to provide them with better education remains pervasive.
But unfortunately the only direct benefit imparted by these interventions is basic vehicle control skills and knowledge of the rules of the road. According to the evidence, education alone has no measurable direct effect on young driver collision risk and therefore, its continued use should be set against much lower expectations in terms of what it can contribute to road safety compared to GDL.
Likewise, the assumption that vehicle handling skills are deficient among drivers contributes to the widespread availability of programmes such as under-17 car park courses that train young drivers how to handle vehicles in advanced driving situations.
These courses may actually give young drivers a false sense of their abilities, leading them to feel overconfident and therefore present an even greater danger on the road.
Ultimately, our highly permissive driver training and testing regime has catastrophic results for a few and expensive premiums for far too many.
Autonomous Emergency Braking
One area that the ABI has dedicated a significant amount of resource to in recent years impacts upon not only young drivers, but all drivers, and even if you haven’t heard of it now, it’s more than likely that in the next few years, you’ll be driving a car that is fitted with Autonomous Emergency Braking (AEB)
Autonomous Emergency Braking is another example of the industry recognising a problem, in this case, the number of (and cost of) low speed collisions.
AEB uses technologies such as radar, lasers and optical sensors to identify other vehicles and in many cases pedestrians, automatically applying the brakes if the driver does not respond in time to avoid or mitigate a collision.
I want to emphasise three key, tangible differences that AEB will make:
The first is improved safety for drivers.
As you know, driver, passenger and pedestrian safety are a top priorities for the automotive industry and vehicle manufacturers dedicate much of their R&D activities to technologies that make our products safer for all road users. International data suggests that vehicles fitted with this technology, benefit from a substantial 27% reduction in damage from accidents and from personal injury claims.
The second is lower costs of motor insurance.
Insurers are so supportive of this technology and, in anticipation of the benefits it will bring to road safety, we have already incorporated it as a component into our Group Rating process. Vehicles fitted with AEB will enter a lower group rating, lowering the cost to insure them.
Where we can recognise and reward technologies that will make vehicles safer for customers, we will do so, which is why AEB is such a great step forward for everyone in the motor insurance market who uses it.
Thirdly and finally, AEB will become power for the course in new cars in the future. It is a major advance in road safety technology.
Together with our colleagues at the Motor Insurance Research Repair Centre – Thatcham Research - we are urging manufacturers to fit AEB as standard, rather than potentially costly optional extras.
To encourage fitment of AEB systems by vehicle manufacturers, recognition of the systems has now been incorporated into the Euro NCAP 5 start safety rating. A vehicle which is not fitted with AEB will not get a 5 star rating.
Even with the clear benefits, widespread take-up from manufacturers has been slow, so in terms of the key message, it’s very much that universal fitment of AEB is key to achieving a meaningful downward trend in crashes. The technology is with us right now and has huge potential to save lives.
It doesn’t stop with AEB though. We are keen to encourage further safety innovations. Innovations that have a convincing and real effect on reducing accidents.
Fundamentally, drivers will benefit from the peace of mind that having this technology on board brings. They will benefit from improved safety and lower costs. And in time, we will all benefit from this evolution in road safety – and hopefully, the many more that are to come thanks to advances in technology.
Conclusion
Insurers don’t create the society in which we live. They hold up a mirror to it and price their policies accordingly.
However, in a society that faces an unprecedented squeeze on public finances, it is important that insurers do their part by offering insight gleaned from claims data and, where possible, create solutions that underpin some of the key policy challenges that face all of us.
While AEB is a good example of an industry led initiative reducing the risk of accidents on our roads, our work on young drivers is an area that requires Government support and that’s why it’s disappointing that the continued delay of the long-awaited Green Paper on young driver safety is stifling the opportunity to debate and discuss ways to improve their safety.
In the context of an environment where people focus simplistically on the cost of young driver insurance premiums rather than stopping to ask why the price is high, the industry has quantified the impact on premiums and we estimate that Based on the introduction of GDL in full, premiums will reduce by to 20%.
Our stance here is not about an industry looking to save money, that peoples premiums will come down should be a secondary consideration.
This is about is the insurance industry taking a thought leadership role on a public policy problem that successive Governments have swept under the carpet for far too long.
We need the Government to grip the bull by the horns, and issue a Green Paper which includes all the options. The more time that is wasted, the more young drivers will continue to kill or seriously injure themselves.
Introducing the fundamental change that is required will not be easy but the experience from abroad – the US, Canada, Australia and New Zealand - has shown that it can be done.