The Deregulation Bill - Will It Really Modernise the Road Traffic Act?
The Deregulation Bill is currently on its way to gaining Royal Assent and becoming an Act of Parliament (law) in the UK.
Aiming to “make provision for the reduction of burdens resulting from legislation for businesses or other organisations or for individuals” - or in other words, to cut “red tape” - the Bill brings with it numerous changes to many different areas of law.
Included in the amendments is an Act close to all motor insurers’ hearts, the Road Traffic Act (RTA) 1988. But what will the changes actually mean for the motor insurance market?
One important amendment is to section 147 of the RTA 1988 - the “issue and surrender of certificates of insurance and of security”. This removes the requirement for motorists to surrender their Certificates of Insurance upon cancellation of a policy. Instead, the insurer’s liability will cease immediately upon cancellation.
Currently under the RTA, if a policy is cancelled but the Certificate is (for whatever reason) not returned, the insurer continues to be liable to pay any third-party claims. The only method the insurer has to avoid this is to apply to court for a Declaration, which is both timely and expensive.
It is very common for insurers to simply take the risk that there could be a third-party claim to pay, rather than applying to court each and every time a policy is cancelled and the Certificate not returned.
While insurers may cheer at the prospect of being freed from these potential third-party claims, one must consider how these innocent third parties will in future be compensated.
The Motor Insurers’ Bureau (MIB) - the body presently responsible for compensating innocent third parties when the responsible party cannot be identified or is uninsured - will face a significant increase in claims once the Bill becomes law.
That the MIB is funded by a levy on all UK motor insurers, should spell out the obvious - the increased number of third-party claims will simply mean higher levies on insurers.
According to the MIB, the costs involved in servicing the current agreement are to the tune of £15-£30 per individual motor policyholder - a sum which continues to rise in light of increasing compensation, legal costs and changes in legislation.
If levies on insurers increase further following the Deregulation Bill’s introduction, it is inevitable that the extra costs will eventually be handed down to motor policyholders. This will do little to ease the pressure on the challenging market conditions that already make the UK a tough place to operate.
It seems that there will be winners and losers as a result of these changes. As the levy is based on insurers’ market share, the big players in the market will potentially be hit hardest, with smaller insurance companies escaping more lightly.