Are We Unfair To Car Insurance Companies?



Life is tough for car insurers. Certainly car insurance is obligatory which means the insurers have a captive clientelle but there is an entire industry devoted to finding cheap car insurance which has driven down premiums so many of these companies have cut their prices to the bone to stay competitive. As if that was not enough European directives have shoved their operating costs up even further.

Let us look at just two examples that have pushed up their operating costs - both as a result of the fact that European Directives have over-ruled UK law.

There is a body known as the Motor Insurers Bureau (MIB) which was formed in 1946 as a generous move to compensate people who were injured, or had their property damaged, by drivers who broke the law by being uninsured. These people could of course try suing the drivers concerned but very often they would prove either untraceable or would have insufficient funds to provide sufficient compensation. The MIB agreed to provide this compensation when this happened.

Funding was, and has been ever since, provided by contributions from every insurance company that sells premiums for compulsory car insurance and since these costs are of course passed on to the honest, insurance buying public it has been estimated that this adds about £30 to every insurance policy.

It was always stipulated however that this liability only existed in the case of someone failing to take out compulsory insurance under the various Road Traffic Acts. Where there was no compulsion it was stipulated under UK law that the MIB had no liability to settle claims. Car insurance is not compulsory for a vehicle being driven on private land to which the public have no right of access so anyone injured by an uninsured driver could not make a claim against the MIB.

In a case that dragged on for about six years it was held in the Court of Appeal that this exclusion was against a European directive which had precedence over UK law. The MIB was instructed to pay compensation to the plaintiff.


There's also been a change in the law recently, again prompted by EU directives.

It was always accepted in the past that if an insurance company issued a policy based on information that the policyholder had given them which was clearly fraudulent, they could obtain a court judgement to have the policy declared null and void, even if an accident had already occurred.

This, it would seem, was against European law. Now, if an insurer, faced with a claim, discovers that the insured person deliberately gave false information which would have resulted in either a vastly inflated premium or a refusal to grant cover at all, then that insurer cannot, as before, ask a court to nullify the policy. This means that they would still be liable to compensate the third party, provided that no other insurer had a prior liability. The potential for fraud that this provides cannot yet be calculated and it is probably inevitable that premiums for honest buyers of car insurance will have to be increased to cover this extra risk.

In both cases EU law has triumphed over UK law; whether or not this situation will continue after Brexit remains to be seen.

Do you still see car insurers as greedy parasites intent on squeezing every last penny they can out of us? Or are they really honest and well run businesses whose directors try very hard to cope not only with highly competitive market but also one in which fraud is rampant, and in which even long established laws can be overridden by an unelected body.