Acknowledging that the insurance industry is at an all-time low, James writes,
"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. By Miles research indicates that 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.
"We urge the Association of British Insurers to take action, to end the low mileage penalty.Car insurance is a legal requirement, and it is 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.
"By Miles report indicates 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 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 driving 1,000 miles a year.
"We believe more flexible pricing models, such as pay-by-mile policies, that accurately take mileage into account, can resolve the issue.
James says the ABI should ask insurers to:
- 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
- Be more transparent about how they're using mileage to price insurance, so drivers can understand how their information is being used in quotes
By Miles also believes that this won't just help make car insurance fairer, but it will be better for the planet too. It speculates that insurance companies could be at the front line of incentivising positive behaviour change to reduce CO2 emissions, by financially rewarding people for driving less.
James continues, "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."
Source: By Miles