Car Clubs / Car Sharing Research Project
Report of Sub-Group Meeting on Barriers to Accessing Insurance
Introduction
1. This report sets out the thoughts and recommendations of the Sub-Group that met under the auspices of the Motorists' Forum on 31st January at the British Vehicle Rental and Leasing Association's Headquarters in Amersham to look at the barriers Car Clubs (CCs) and Car Sharing schemes (CS) face in accessing insurance.
2. The Sub-Group comprised representatives from the British Vehicle Rental and Leasing Association, Carplus (formerly the Community Car Share Network), Aon Risk Services, Universal Insurance Group, Avis Rent A Car and the Motorists' Forum Secretariat. The Group's remit was to:
- Review and investigate the barriers to access of CCs and CS schemes by individuals through the inability to gain suitable insurance cover.
- Determine how far the boundaries can be pushed and which groups are unlikely to be able to access insurance cover, economically, in the foreseeable future.
3. The Sub-Group's key recommendations are summarised in paragraph 9 of this report. They include:
- Close Government liaison with the insurance industry
- Close partnership between stakeholders and CC operators over the question of insurance
- The possible subsidy by Central and Local Government of the insurance component of CCs - especially in respect of rural schemes
- The possibility of stakeholders funding the third party costs of insuring a CC, and
- Government support for the development of new technology.
Background
4. The Motorists' Forum was asked in the Government's 10 Year Transport Plan 'to advise on how to promote CS and CCs in rural areas'. It was subsequently agreed that this remit should be expanded to include urban areas.
5. A research contract was awarded to the Institute of Transport Studies (University of Leeds) in 2001. The Institute's remit was to conduct a detailed analysis of the scope for further utilisation and expansion of CCs and CS. The Forum and the Department for Transport, Local Government and the Regions (DTLR) are jointly funding the project.
6. The consultant's Interim Report highlighted that insurance is a significant item of expenditure for CCs. It advised that currently negotiated packages effectively rule out the possibility of membership by the young or elderly and highlighted the adverse social inclusion effects of such omissions. The Steering Group appointed to oversee delivery of the project decided therefore to form a Sub-Group to look separately at the question of insurance provision for CCs and CS. This report represents the findings of that group and should be considered in conjunction with the conclusions arising from the Institute's research, as well as outputs emerging from further research conducted by DTLR and the Countryside Agency on rural car schemes.
Barriers
7. A number of existing CCs were contacted to collect their experiences. This feedback, combined with the discussion at the Sub-Group, highlighted a number of barriers that CCs encountered in obtaining suitable insurance cover. Costs of insurance and excess are currently high due to the number of different users driving each car (where individual risk is multiplied) and because of the inadequacy of some security arrangements for the cars and keys. Threats to the viability of a CC derive from the possibility of incidents occurring - such as accidents, vandalism, etc - which would incur high excess costs and take cars off the road, causing bookings to be lost. These are important considerations as CCs are struggling even under restricted circumstances due to a lack of support in this area.
8. Another key factor is the problem of insuring higher risk groups and the fact that insurers consider CC users to be in the high risk category. Risk is strongly associated with age - primarily relating to the statistical likelihood of younger and older drivers submitting insurance claims. Occupation, lifestyle and driving history also influence the cost of insurance. Costs can therefore be high and insurance, in some instances, can be difficult to obtain for certain groups. This can act as a barrier to expansion as additional risks are often incurred as the number of CC members grows, and in some instances it is threatening the survival of existing clubs. Insurance costs will inevitably also be higher when CCs are city-based and where there is inadequate security.
9. The specific barriers highlighted included:
- Insurers find it difficult to cover younger (perhaps under 23) and, to a lesser degree, older (perhaps over 75) drivers because of the associated risk
- Some groups are socially excluded from using a CC based on age and other considerations
- Risk increases when journeys are business/commercial-related
- As the insurance risk is spread among all members, claims have to be settled regardless of the claimant and his/her liability
- The volume of third party insurance claims pushes up the price of cover for everyone
- The cost of insurance excesses levied can be expensive, and
- The absence of a standard operational structure for CCs.
Key Recommendations
10. It was suggested that gaining affordable insurance provision lies in demonstrating to the industry that CCs are different from conventional car-hire and rental schemes and that by their very social make-up, CC users are responsible citizens and join CCs on a long term basis. It was also felt that the industry is more likely to buy into the concept if CCs are sufficiently large in membership.
11. The following key recommendations to overcoming insurance barriers were suggested:
- Government should liaise closely with the insurance industry on CC participation, ultimately encouraging the industry to "buy in" to the concept and take the necessary steps to fully evaluate the risks
- Stakeholders - Central Government, local authorities, planners and developers, public transport operators, employers and other interested groups - should work in partnership with CC operators over the insurance components of CCs
- Central and local Government should consider subsidising the insurance components of CCs - especially in respect of rural schemes where they may play a role in replacing more expensive public transport. This could consist of providing an 'insurance pool' underwriting the risk of CC activity, perhaps funding the comprehensive component of insurance
- Stakeholders should consider funding the third party costs of insuring a CC - this is the arrangement for a CC planned in Holbeach by Lincolnshire County Council (third party cover will be 'bought in' with the council self-insuring the comprehensive component) and
- Government should support the development of new technology, such as smart-cards, to further develop the security of CC cars.
Other Potential Solutions
12. As well as the key recommendations outlined above, the Sub-Group also suggested that the following areas should be considered:
- Restricting eligibility for membership, such as excluding those who pose the greatest risk - ie younger and older drivers (although it was accepted that this would have an adverse effect on social inclusion)
- Increasing the number of drivers on CC policies (thereby spreading the risk)
- CC operators working in partnership with local car rental companies to access existing short term use insurance schemes whilst building up an operating history
- Insuring CC pool cars as fleet vehicles under local authority existing schemes
- Attracting local sponsorship - ie major supermarket chain
- Considering the scope for re-directing subsidy from rural buses and other transport modes (cross-subsidy), and
- Stakeholders providing statistical evidence to insurers backing the claim that CC members are responsible (low-risk), and to invite industry representatives to talk to CC operators and members.
Car Security
13. Another major insurance risk associated with CCs is the security of the vehicle when not being driven. This is in contrast with conventional car hire where the greatest risk applies when the vehicle is being driven. Vandalism is also perceived as a problem. Anecdotal evidence suggests that vandalism is sometimes driven by resentment of CCs by an element of the local community. Providing secured vehicle storage is therefore paramount. There is also a difficulty for CC users to ensure that cars are stored securely following use.
Car Key Security
14. Careful thought also needs to be given to the storage of the car ignition keys. As car security has improved, criminals often now look for ways to obtain the keys themselves in order to take the car. Therefore, providing a key-box or a safe at a CC station may not necessarily be the most effective means of storage. Indeed, this may act as a magnet to determined criminals. A more secure provision would be to introduce smart-card technology enabling 'remote' access to the vehicle and perhaps allowing the keys to be stored in a mini-safe inside the car's glove compartment, or even looking at a form of a 'key pad' security system replacing traditional keys.
15. In mentioning smart-card technology, many CCs do now incorporate modern technological features to ensure their operation is as secure as possible. Pool cars are often fitted with tracker systems so that a vehicle's whereabouts can be pin-pointed at any given time. This is an important consideration for insurers. Inevitably, however, new technology is often only introduced once a CC has become established and is then looking to grow. The more security-conscious CC operators are, the better their working relationship is with the insurance industry and the more likely they are to obtain affordable insurance cover.
Conclusions
16. The Government clearly has a continuing role to play in presenting a favourable image and in raising the profile of CCs. A major area for it to pursue with the insurance industry is the benefits that the industry would derive from their involvement in CCs and how this can be channelled into furthering the industry's participation. Although this is difficult to immediately quantify, industry sponsorship of CCs is an option, bringing with it good public relations and an opportunity to promote the insurer's brand name. Aligned to this, insurers would have a vested interest in getting it right - though commercial pressures would inevitably dictate the need for profit margins.
17. Ultimately, increasing the scope for utilising CCs demands a lifestyle change and cultural shift in journey planning, eg using a CC in conjunction with public transport and/or other transport modes. But its success will also require commitment - a 'leap of faith' on the part of the insurance industry. By encouraging partnership and support between CCs and the insurance industry, the benefits open to the various parties can be mutual. Indeed, if the desired shift in travelling behaviour is achieved, and the critical mass for CCs achieved, car usage overall will decline resulting in fewer accidents and fewer insurance claims.
Car Sharing (CS)
18. The group did not consider the insurance provisos in respect of CS in any detail, as this is a vastly different concept to CCs. Here, the biggest risk relates to personal security.
19. Generally, with CS, the cost of the ride is shared between the driver and the passenger. Where a more formal charge is levied for a journey, contractual obligations relating to hire and reward apply and this complicates the arrangement. The insurance implications are then diversely affected. Advice on the type of insurance cover needed for CS schemes may be provided by Carplus.