There are plenty of insurance price comparison websites around. I’ve used several of them and I’m sure you have too.
But there’s one option which you never see listed, and I’m curious about it.
The cost of insurance
The BBC today published some news about a Competition Commission investigation into car insurance. Whilst that isn’t directly anything to do with the risks people face on the road, it did make me curious enough to go and dig up a few figures.
Firstly, we can note from the article that the 25 million private insurance policies in the UK are worth roughly £11bn, making the mean policy premium £440.
The cost of no insurance
A fairly obvious thing to look at next is the punishment for driving without insurance, which is £300 plus 6 points for a fixed penalty notice (FPN) or up to £5000 plus a potential disqualification if it goes to court.
So, the fine in some cases (the majority?) is £140 less than the average policy. This is the minimum that the law sees fit to apply; the 6 points have no direct legal consequence themselves (unless you are a new driver, in which case they constitute a ban under the New Drivers Act).
It should be patently clear that a £300 fine for being uninsured is completely and indisputably ineffective as a deterrent.
Who’s applying the punishment?
The curious thing about this punishment is that the law leaves it up to the market to voluntarily apply the lion’s share, by way of raising premiums for the 6 points of the IN10 ticket. Little information is available on this: the sole piece of data I can find is from a widely-reported Confused article from earlier this year, which suggests a 131% increase for a £682 base premium. (That’s based on a sample of one, so it’s perhaps not too trustworthy. However, it’s worth noting that specialist convicted driver insurers are trivial to find on Google, and I doubt they’re on Confused’s books.)
So, for our £440 average policy, we can estimate an increase of a bit under £580.
Now, the offence will still be accounted for beyond the first year, of course. Let’s assume an insurer will apply the same increase over 5 years: it would mean £2900 of additional premium over that time.
So our average driver, if he or she decides not to pay insurance, will incur estimated costs of £3200.
But wait. That’s if they get caught.
The cost of getting caught
Figures from 2009 suggest that 194,000 convictions were made during one year, from a population of 1.5 million uninsured drivers. That’s roughly a 13% conviction rate, meaning you stand to go eight years between getting collars felt.
So, spread the £3200 of the fine plus increased premiums over the eight years it takes to catch you and the average “non-insurance premium” is £400.
That’s rather appealing alongside the average insurance premium of £440.
(What’s more, since 90% of the “non-insurance premium” actually ends up with the insurers, it seems financially only 10% absurd to suggest that insurers should actually be offering Confused or Money Supermarket a commission to list it as an option.)
So, working with averages and the laws of probability, you’re £40 per year better off if you drive without insurance; a 10% saving.
And that assumes that people who drive without insurance will do so once they’ve been rumbled and their premium rises to 2.3 times its original price. They didn’t want to pay before, and the system’s just made it significantly less attractive.
OK, the figures above have some hefty margins of error. I don’t for one minute suggest this is a universally-applicable demonstration that going uninsured is the financially astute move. But it does illustrate the following things, all of which I would argue are deeply problematic:
- The minimum (and, I am guessing, the most likely) statutory punishment for driving without insurance is significantly lower than the cost of an insurance policy. This makes it a clearly impotent deterrent in its own right.
- The overwhelming majority of punishment for uninsured drivers is not applied by law, but by the market. The market is free to choose to punish offences as strictly or as leniently as it likes, or even not at all if it so wishes – but it can only do so when customers buy products. If the punishment for evading the market cost is delivered by way of increasing the market cost, then not only may offenders still evade it, but they are more greatly incentivised to do so. Further still, offenders are not even legally obliged to accept the market’s punishment: they have the option to stop driving and, perfectly legitimately, incur no further financial impact.
- Even if all of the above goes swimmingly well and the offender changes their ways then, taking into account policy premiums and the conviction rate, they are on average £320 up on the deal. Even with the sanctions of both the law and the market combined, it is arguably cheaper to break the law than to abide by it. At the most generous, it seems fair to say that there is no clear evidence to suggest that the punitive measures are in any way compelling. Those who drive without are, financially at least, placing a roughly evens bet.
I should probably cancel my policy.