Cheating on your insurance – UK style

Millions of parents are said to be breaking the law in order to save money on car insurance for their children. New figures suggest that 41% of parents deliberately lie when filling out policy applications.

Parents are claiming to be the main drivers on the policy, when in fact it is one of their children who is the main driver, or owner of the car. The practice known as fronting potentially offers large savings but could lead to prosecution.

(BBC News, 4th June 2010)

Well, its not just breaking the law, not just about risking your and your child’s insurance cover, it is criminal. I actually do not care very much if these people risk their home and future, but this fronting practice is plain and simple theft, stealing money from the honest, ultimately stealing my money, and about that I care very much.

Lock a the simplified “Simpson” world of 3 parties I outlined below, a honest young “Bart Simpson” paying 4,000 GBP, and honest mature “Homer Simpson” paying 600 GBP, and the cheating “Aristotle Amadopolis” in-between paying just 1,500 GBP and saving 2.500 GBP. Saving? No, I should say stealing 2,500 GBP. It is just a model, not exact reality, but a calculation guide, and without wanting to discuss the merits of profit for insurance companies, lets just assume for a moment the level of total premiums collect is necessary. With these collected premiums they can pay out all claims, in this example 6.5 billion pounds.

If we now remove the cheating persons from this picture, both, the honest young driver and the mature older one, suddenly profit from lower premiums, while the premium collected by the insurance companies remain unchanged. This difference is what us honest people is stolen from the cheating fronting people.

As you can see, the total moneys collected (6.5 billion) remain the same, but all individual premiums could be reduced, “simply” by eliminating the cheaters.

Will we ever succeed? Is it so “simple” to reduce the cheaters? I do not think so, it is too tempting, and we need to change the system. The question of “Who is the main driver?” is really open for discussion and interpretation. The child is the main driver for 4 month, and for the rest of the year the policy holder? All this is hard to prove, and will cost money and resources to prove, again increasing the premiums honest people pay. Trying to control ambiguous statements and rules is often not productive,  and expensive.

It would be easier  to change the car insurance system, replacing it with a driver insurance system. We should not insure the car, as the car is not doing any damage. We should insure the driver, he is doing the damage, and thus turning the system upside down.

Instead of insuring a car and add to it named drivers, we should insure the driver and add named cars to his personal policy. This way, each driver pays what he needs and uses, according to his age and skills, and the room for cheating and fronting will dramatically be reduced. Nice bonus models can be designed to suit the advanced careful drivers, as it is his driving history that is at the center of the contract, not the car. Such a system would be similar to premiums charged by the RAC or AA, they are driver focused, not car focused.

So if you want to drive a car or a bike, get a personal driving license, and get a personal driving insurance, and add to it as many cars and bikes as you like – and can afford.

As one women said in the BBC interview: “Anything that saves money is a good idea”. Please think again, as you are stealing money from other honest people, and stealing is not a good idea.

Happy to hear your thoughts…

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