Are young drivers being ripped off with car insurance?

Tuesday, 11 October 2022

Younger drivers are more likely to have a crash, statistics show.

Drivers under the age of 25 are 26% more likely to be in a crash than older drivers, according to r esearch from insurance company AMI.

But that means they also pay more for their car insurance. So are they getting a fair deal?

According to Waka Kotahi New Zealand Transport Agency, drivers on a restricted licence were seven times more likely to be involved in a fatal, or serious injury crash than other drivers.

Data also showed that young restricted drivers were more at risk of having a serious crash in the first six to 12 months of driving solo on their restricted licence than at any other time in their lives, partly due to driving inexperience.

Many countries have laws requiring drivers to be insured. New Zealand does not, despite policymakers having looked closely at doing so several times.

* Insurance claim declined after learner driver was left 'unsupervised' by sleeping passenger

* Young driver crashes increase despite introduction of tougher restricted licence test

Drivers aged under 25 were therefore a risk for insurance companies, and as a result their premiums were higher than those for older drivers.

According insurance company online premium calculators, the lower the driver's age, the higher the price of insurance.

The research compared quotes for comprehensive insurance from AMI, AA Insurance, State Insurance, Trade Me Insurance and Tower Insurance for a 2010 Toyota Corolla GLX with no car alarm and parked off-street but not in a garage.

The sample drivers were a 17-year-old male and a 17-year-old female with no accident history and holding a restricted licence since 2021.

Dr Michael Naylor says car insurance can be discriminatory, and the system could be better.

The drivers travelled about 2000km a year, and the vehicle was for private use and had an insured value of $9000.

It found while some insurers were competitive , others quoted well above average for a stand-alone policy.

Digging into the numbers a little further, the calculators for various insurance brands found a 17-year-old male in Takapuna, Auckland, would pay $1144.62 through AMI, while a female would pay $1100.46, the cheapest options. State Insurance came in at $1724.19 for a male and $1589.49 for a female, and Trade Me Insurance was the most expensive at $1946.23 (male) and $1718.46 (female).

Paying the annual car insurance premium in a lump sum was between 10% and 15% cheaper than paying in monthly or fortnightly instalments, saving about $100 to $200 a year.

But senior lecturer at Massey University, Dr Michael Naylor, said insurance companies had every right to base insurance and premiums on statistics.

“The law allows insurance companies to discriminate based on things they can prove statistically,” he said.

This meant they could use age and sex to change premiums – but it didn’t mean people under the age of 25 were being ripped off.

“Insurance companies don’t have data on general driving they only have data on when you crash.

“And therefore it’s hard to tell which drivers are good and which drivers are bad.”

But increasingly sensors were being put into cars, which monitor driving behaviour.

An example was in the UK, the Drive Like a Girl programme fitted young drivers with an in-car sensor that tracked a driver’s acceleration, breaking and how fast they took corners. Good driving was rewarded with a premium discount, bad drivers were charged higher premiums, Naylor said.

“That can start to solve the discrimination problem,” he said.

Correction: An earlier version of this story used insurance premium data from MoneyHub that was out of date. (Amended at 5.10pm, October 13, 2022)