Dear Mr. Evans,
Trust in the insurance industry is at an all-time low.
Not too long ago, the ‘loyalty penalty’ was in the headlines. The regrettable practice of dual pricing whereby new customers are lured in with one price, while loyal insurance customers with the same risk are penalised with automatically renewed insurance policies at a far higher rate, still affects some of the most financially vulnerable people in society.
While the battle is far from won, pressure from the Association of British Insurers (ABI) is slowly moving the industry in the right direction.
Today, we published a new report that suggests 19.3 million UK drivers could be falling foul of another penalty and being overcharged for car insurance, simply because they don’t drive much: the low mileage penalty.
Our analysis of 1.7 million quotes for car insurance from a major comparison site shows that UK motorists driving under 7,000 miles a year are paying an additional £180, on average, for their cover, compared to motorists driving over that threshold. This doesn’t make sense, and we don’t think it’s fair.
We’re urging the Association of British Insurers to take action again, to end this low mileage penalty.
Car insurance is a legal requirement, and it’s concerning that the mobility of many is threatened by the lack of affordable, fairly-priced cover.
It’s a fact that the less time your car spends on the road, the less likely you are to have an accident. Just last month, one of the UK’s largest traditional motor insurers announced a reduction of 70% in claims during April while people weren’t driving during lockdown.
Our report shows that motorists are 1.5x more likely to declare having made a claim in the last 5 years if they cover more than 11,000 miles annually than drivers who say they drive below 7,000 a year. While drivers doing 12,000 miles a year are 300% more likely to declare a claim, compared with motorists that say they drive 1,000 miles a year.
We believe this problem is solved by more flexible pricing models, such as pay-by-mile policies, that accurately take mileage into account in real time. We recognise that it’s not possible for all insurance companies to shift to this model quickly. But something must be done to protect lower mileage drivers from being overcharged in the meantime.
We would like the ABI to ask insurers to:
1. Review their pricing to better reflect the reduced risk posed by decreased mileage, and stop using the premiums of lower mileage drivers to subsidise the cost of insurance for higher mileage drivers
2. Be more transparent about how they’re using mileage to price insurance, so drivers can understand how their information is being used in quotes
This won’t just help make car insurance fairer, but it will be better for the planet too. Insurance could be at the front line of incentivising positive behaviour change and reducing CO2 emissions, by actually financially rewarding people for driving less.
It is now clearer than ever that there’s an undeniable link between high mileage and claims frequency, so we urge the ABI to ensure that the savings made by insurers are passed onto lower mileage motorists. When you drive less, you should pay less for your car insurance. It’s as simple as that.
I’d be more than happy to set up a call to discuss this matter further, to encourage the industry to better cater for the millions of lower mileage drivers in this country that aren’t currently being fairly treated.
CEO, By Miles