Simon Read: You won't help kids by giving them fraudulent cover
Saturday 27 February 2010
Fronting was back in the news this week after research from the Motor Insurers' Bureau revealed that two-thirds of drivers don't understand what it means to "front". Clearly Britain's motorists need to get educated as fronting is illegal and could lead to insurance claims being rejected out of hand.
To remind you, fronting is when someone other than the main driver of a vehicle is declared as the policy holder. For example, a parent may insure a car and declare themselves as the main driver when one of their children will actually be driving the car. It's obvious why people do this. Insurance for young drivers is astronomic and often unaffordable for new drivers. Putting the parent as the main driver in order to reduce the insurance premium can seem like a good and harmless solution.
MIB's research suggests that plenty of people subscribe to this view. More than a third of drivers justify fronting as being a loophole in the law. One in ten believes that fronting is a legitimate way of obtaining cheaper motor insurance. Of course it's neither. If parents front for their children, they are committing fraud, and under contract terms, could invalidate their insurance policy. Worse, insurers could try to recover the third-party costs from a policyholder. So if you fronted for your son or daughter and they were in an accident with another vehicle, not only would you not be able to claim on your insurance but you could also be chased for the cost of repairing other vehicles in the accident – which could add up to thousands. On top of that, you could even be prosecuted.
Mike Pickard, esure's head of risk and underwriting, says insurers are getting tough on fronting. "It is fraud, despite many people thinking it is a legitimate way of massaging premiums down with a few white lies," he says. "The simple rule is that if you're deliberately trying to give your insurer the impression of a low-risk set of circumstances when you know that the truth is different, you are probably fronting.
"Cases where parents are effectively trying to transfer their own no-claim discount to an inexperienced driver on a car they simply don't drive are fronting – plain and simple. Parents may be tempted to do this to slash the cost of their son or daughter's car insurance but, if detected, insurers could treat the policy as invalid. Honesty is the best policy when it comes to car insurance."
The problem, of course, is the high cost of insurance for a young driver. Premiums are high simply because youngsters have the highest proportion of insurance claims and accidents. Insurers aren't picking on them, the huge cost just reflects the risk they have to take. So the solution is not to risk prosecution by fronting, but to help youngsters to find ways to cut the cost of premiums.
There are obvious things that can be done, such as choosing a smaller-engined vehicle and not being tempted to soup it up. Fitting alarms and immobilisers will also cut costs, and parents could help by making a garage available to their kids if they have one. If an insurer knows that the car is kept overnight in a safe environment, then that reduces the risk of it being stolen. Also look out for rapid bonus schemes that let young drivers earn a full year's no-claims bonus in as little as six months, which some insurers offer.
There are other things to do to cut costs. Nigel Bartram, motoring strategist at Aviva, suggests that young drivers do Pass Plus. "It's a training course for new drivers designed by the Driving Standards Agency in consultation with the industry. There's no final exam to pass but drivers could get up to 10 per cent off their insurance if they take the course," he says. Details about the scheme are at www.passplus.org.uk
Without its guarantee the Rock is pointless
The Government is scrapping the 100 per cent guarantee on Northern Rock savings on 24 May. It's about time. the guarantee gave the collapsed bank an unfair competitive advantage for more than two years as frightened savers flocked to find a home for their cash that was totally secure. After 24 May, savers will still have up to £50,000 of their money in Northern Rock guaranteed under the Financial Services Compensation Scheme, but my inclination would be to move cash out of the Rock in any event.
If you want a totally secure and safe home for your cash you will then only have one real option: the government-backed National Savings & Investments. All cash with them is guaranteed by the Treasury. But there's a big drawback: the interest rates are paltry, just 0.7 per cent on £50,000 in its Instant Access Savings Account.
So you would be better off switching savings to a high-rate account. You can check our weekly best buy tables when you want to switch cash and move to whatever is the best deal at the table. What about the safety of your savings? I think we know now that the Government won't let a British bank or building society go bust, so I reckon you've got a pretty wide choice of safe homes.
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