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Personal motor insurance

This article was last updated by the author in October 2016.

A brief introduction to personal motor insurance.

Contents

Overview

Motor insurance is one of a few classes of insurance which are compulsory in the UK. The most important piece of legislation in this respect is the Road Traffic Act 1988 (as amended and updated by later legislation).

This makes it illegal to use a motor vehicle on a road, or public place, unless insurance is in force covering legal liability for injury to others and damage to their property. From May 2011, it also became illegal to keep a vehicle without appropriate insurance unless the DVLA has been notified that it is 'off road'.

In addition to complying with the requirements of the Road Traffic Act 1988, all motor policies must meet the requirements of a number of EU Motor Insurance Directives.

There are 4 levels of cover available:

  • Road Traffic Act only
  • Third party only
  • Third party, fire and theft
  • Comprehensive

There are two types of personal motor policy; private car and motor cycle.

Typical cover provided

Private Car

Road Traffic Act (RTA) cover

This is the minimum level of cover which is available and provides the cover needed to meet compulsory insurance requirements. Very few RTA policies are issued, as the difference in cover between RTA and Third Party cover is not great. For all practical purposes, the lowest level of cover offered by insurers is Third Party.

The cover provided under an RTA policy includes:

  • indemnity for bodily injury or death caused to third parties, including passengers, which must be unlimited in amount
  • indemnity for loss of or damage to property belonging to third parties; limited to £1,000,000. This complies with the Motor Vehicles (Compulsory Insurance) Regulations 2007, which were passed in the UK to meet the requirements of the Fifth EU Motor Insurance Directive
  • indemnity for claimants' costs and the expenses of handling the claim
  • charges for any emergency medical treatment and hospital charges arising out of the use of the vehicle
  • the minimum legal cover required when a vehicle is being used in another EU country (or the minimum cover required in the country where the vehicle is kept, whichever is the greater). This meets the requirements of the Third EU Motor Insurance Directive
  • liability to persons in the employment of the insured, when travelling as passengers in the course of their employment (but not the driver). This also meets the requirements of the Third EU Motor Insurance Directive. Any legal liability that the employer has towards the driver would be covered under their employers' liability policy.

There is no cover for damage to the insured's own vehicle.

Third party only

The cover provided by a third party only policy includes all the cover under an RTA policy, plus the following:

  • cover is extended to apply whilst the insured vehicle is being driven on private land, as well as on a road or public place. Territorial limits apply, which are usually anywhere in the United Kingdom, the Isle of Man or the Channel Islands. Some insurers extend cover to apply to the whole of the EU for a limited time in any one period of insurance
  • a limit of £20 million for third party property damage
  • indemnity for accidents which occur whilst the insured is driving a car that does not belong to them. Not all insurers provide this extension or only provide it for certain policyholders (such as those over 25 years old)
  • indemnity to anyone who is driving or using the vehicle on the insured's order or permission. In practice, it is common for the insured to choose to restrict cover to, for example, named individuals or husband and wife only, in return for a premium saving
  • indemnity to passengers, employers or business partners, should they be held responsible for an accident
  • legal costs incurred in the defence of a claim
  • limited cover for legal representation costs following a prosecution for a motoring offence which may give rise to a claim.

There are specific exclusions that relate to a third party only policy:

  • damage to property owned, held in trust by or in the custody or control of any person claiming indemnity under the policy
  • liability covered by any other insurance policy.

Third party, fire and theft

This is the first level which includes some cover for the insured's own vehicle.

The cover provided by a third party, fire and theft policy includes all the cover under a third party policy, plus the following:

  • damage to the insured vehicle by fire, lightning or explosion
  • damage to the insured vehicle during attempted theft or whilst it is stolen. Some insurers include the taking of the vehicle without consent
  • loss of the insured vehicle due to it being stolen and not recovered.

In addition to the two third party policy exclusions identified earlier, a third party fire and theft policy also excludes 'loss of use'; i.e. any financial losses incurred by the insured whilst their own vehicle is off the road.

Comprehensive

This level of motor insurance cover offers the widest possible protection.

The cover provided by a comprehensive policy includes all the cover under a third party fire and theft policy, plus the following:

  • other accidental or malicious damage to the insured's car
  • personal accident cover for insured and spouse
  • medical expenses cover for the insured and passengers (subject to a limit of £100-£250)
  • loss of or damage to personal belongings and clothing (subject to a limit of £100-£250).

The cover provided is on an 'all risks' basis, which means that all loss or damage is covered unless specifically excluded;

A number of specific exclusions apply to comprehensive cover, including:

  • loss or damage to accessories and spare parts, unless on the vehicle or in the insured's garage
  • wear and tear and depreciation
  • loss of use
  • mechanical and electrical failure or breakdown. It is only the part that fails which is excluded; any resulting damage to the vehicle is covered
  • damage to tyres caused by road punctures or bursts
  • a 'young or inexperienced drivers' excess. The term 'inexperienced' means either holding a provisional licence, or not having held a full licence for a period of at least a year. These excesses usually apply in addition to any other policy excess.

Motor cycle

Motor cycles are insured on a specified motor cycle basis, where the driver is insured to ride a particular motor cycle.

In insurance terms, a 'motor cycle' is any kind of cycle propelled mechanically, including mopeds. This definition is very wide and the associated risks vary significantly. Many of the considerations for motor cycles are the identical to those for private cars, both being subject to compulsory insurance requirements. The same four levels of cover are also available. However, as motor cycle insurance is generally considered to be higher risk, the cover offered is narrower than for private cars in some respects.

The main differences between a motor cycle policy and a private motor policy are:

  • under the accidental damage section, there is no cover for theft of accessories or spare parts unless the motor cycle itself is stolen at the same time
  • the liability section generally indemnifies only the insured (or their personal representatives in the event of the insured's death). If others are permitted to drive the motor cycle then they would also be indemnified as would users of the motor cycle for social domestic and pleasure purposes
  • there is no automatic cover for personal accident benefits, medical expenses (beyond emergency treatment fees) or personal effects.

Optional extensions

Private Car

A number of optional extensions are available:

  • breakage of glass can be added to a non-comprehensive policy
  • an increased limit for personal belongings and clothing on a comprehensive policy
  • loss of use on a comprehensive policy;
  • full foreign use cover, giving the same cover whilst driving abroad as whilst driving in the UK. Some insurers automatically provide free continental cover for up to 30 days in any one period of insurance
  • cover whilst motor vehicles are used in connection with elections
  • cover for less hazardous rallies and trials, such as road safety rallies. However, cover for those events involving racing is only provided by a few specialist insurers
  • comprehensive cover for trailers. Third party cover is automatically included for caravans or trailers while they are attached to the insured vehicle. Wider cover for caravans is usually insured under a separate non-motor policy
  • breakdown cover on a comprehensive policy
  • legal expenses cover.

Insurers will charge an additional premium for most of these extensions.

Motorcycle

The main optional extensions available are:

  • cover for trailers
  • driving other cycles (although this is usually excluded where the motor cycle is of modest specification)

Key exclusions

Private Car

In addition to the exclusions which apply to the specific sections of cover, there are a number of general and market exclusions applicable to all sections of the policy, including:

  • driving by unlicensed drivers
  • use of the insured vehicle outside the uses that the policy permits
  • contractual liability
  • war risks
  • radioactive and nuclear risks
  • riot and civil commotion in Northern Ireland, for own damage cover
  • sonic bangs
  • pollution and contamination unless arising from a single identifiable event
  • using a vehicle in an unroadworthy condition. However, this is one of a number of circumstances, listed in the Road Traffic Act, where the insurer must pay an RTA claim and then seek to recover its outlay from the insured.

Any driver insured by the policy must hold a licence to drive the vehicle, or have held and not be disqualified from holding or obtaining such a licence. The insured will not be indemnified if they know that the person driving the vehicle at the time does not hold a licence. However, the insurer will be obliged to pay any RTA claim and then seek recovery from the insured.

The policy also excludes liability for any accident, injury, loss or damage which occurs while the vehicle is being used for a purpose outside the description of use in the certificate of motor insurance.

Motor cycle

The policy exclusions and limitations under a motor cycle policy are the same as those for private motor insurance.

Rating factors

The rating of private motor and motor cycle policies is based on the assessment of a wide range of risk factors. The most significant of these are:

  • the type of vehicle/bike, including any modifications and security features
  • details of the proposer and other drivers, such as age, occupation, driving and claims record
  • the geographical area of use/and or garaging
  • the use of the vehicle/bike, such as whether it is used solely for social domestic and pleasure purposes or whether business use is required
  • the level of cover required

Based on these factors insurers will determine a flat premium to be charged. Insurers then deduct a no claims discount (sometimes called a No Claims Bonus) depending on the number of years of claim-free driving.

Other discounts are also available; for example, for having more than one vehicle/cycle insured with the same insurer, or for accepting a voluntary excess.

As an alternative to this traditional way of rating motor policies, an increasing number of insurers offer telematics based policies. This involves fitting a black box in the car to record how, when and where the insured drives, so that a personalised price can be calculated.    

Product providers

The market for private car insurances is very competitive. There are a wide range of suppliers, including traditional intermediaries, banks, retailers, Lloyd's syndicates and insurers selling direct to the public. It is increasingly common for private car insurance to be purchased over the internet, including through aggregator (price comparison) websites. The insurance industry is also in the early stages of engaging with new technologies such as smartphone apps, Facebook and Twitter. This has mainly been as a customer service, communication, relationship building and marketing tool, although some also offer the facility to purchase and service policies.

Motor cycle insurance is generally considered to be higher risk than private car insurance. Therefore, the number of insurers offering cover is far more restricted. A large proportion of motor cycle insurance is arranged through schemes operated by specialist intermediaries.

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