Low mileage insurance penalty revealed: Why drivers covering 5,000 miles typically pay FAR more for cover than those doing double that
- Motorists driving under 7,000 miles a year pay more for cover
- 25 to 29 year-olds fork out the the most, at an average of £239 more
- By Miles is calling for low mileage drivers to pay less for insurance
Millions of motorists who drive fewer than 7,000 miles a year are paying a low mileage ‘penalty,’ new data suggests.
Of those, 25 to 29 year-olds are paying the most – those in this age bracket declaring an annual mileage of 5,000 to 6,000 miles fork out an average of £239 more than those of the same age driving double that amount.
The average annual distance driven by cars is currently 7,090 miles, the analysis of MoneySupermarket data from By Miles shows.
UK motorists driving under 7,000 miles a year are paying a low mileage penalty of £180
Insurance giants spread the cost of cover for drivers across all of their customers to keep insurance premiums affordable for higher mileage drivers.
However, as a result, lower mileage drivers tend to end up subsidising higher mileage drivers’ increased risk and paying more despite driving less, the research claims.
The data found the most popular annual mileage bracket was between 5,000 and 6,000 miles.
But these low mileage drivers are being charged up to £215 more than motorists stating they do more than double that distance per year.
James Blackham, co-founder of By Miles, said: ‘People are still reeling from the insurance industry’s loyalty penalty scandal and now we have another – the low mileage penalty.
‘At a time when drivers are completing fewer miles during the lockdown, the unfairness of the traditional car insurance pricing structure is clear to see. If you drive less, you should pay less.
‘It’s a fact that lower mileage drivers are less likely to claim, so there is no logical reason for the higher charges they’re facing. ‘
By Miles also found that the more miles someone drives, the more likely they are to make an insurance claim.
By Miles found the more miles someone drives, the more likely they are to make a claim
While motorists who clock up 12,000 miles a year are 50 per cent more likely to declare a claim in the past five years, when compared to the average low mileage driver completing under 7,000 miles annually, they are also 300 per cent more likely to declare a claim than those driving 1,000 miles a year.
Despite this, lower mileage drivers are not rewarded with lower premiums for their reduced driving and risk.
Drivers between the ages of 40 and 49 driving 5,000 to 6,000 miles a year are still also paying an average of £150 more for their car insurance than motorists declaring double that distance.
By Miles is calling on the Association of British Insurers to put an end to the low mileage penalty, and has sent an open letter to the body to ask for insurers to review their pricing to reflect reduced risk with decreased mileage, as well as greater transparency on pricing structures.
Lower mileage drivers are not rewarded with lower premiums for their reduced driving
Blackham added: ‘Insurers must stop inflating premiums for lower mileage drivers to subsidise the higher claims costs of higher mileage motorists and start actively rewarding people for driving less.
‘The technology needed to log the actual miles completed by drivers already exists, and it’s unfair to keep overcharging low mileage drivers just because that data isn’t being properly taken into account by insurers.
‘We’ve taken steps to challenge the industry to act in a more transparent way. We believe the change can happen. Insurance needs to evolve to work in this new world.’
By Miles based the data based on nearly two millon quotes from car insurance companies on MoneySupermarket between 1 July 1 2019 and 30 September 2019.
How to save money on your car insurance
1. Check how many miles you drive: To give yourself the best chance of paying a fair insurance price, an accurate understanding of how many miles you actually drive is vital.
Your MOT certificates are the best indicator for this, as you can work out how many miles you drove last year.
You can use this number to make an informed assumption for the coming year when you renew your policy.
2. Take the time to shop around: The more time and research you put into getting quotes, the more likely you are to get a better deal.
Compare different quotes and prices – factoring in the level of coverage you’re getting.
Be sure to check the detail to make sure you’re getting the right cover for your car, not just a good bargain.
3. Look at new kinds of insurance: Don’t be afraid to look at new types of policies.
Telematics policies that monitor how you drive can be excellent for younger drivers looking to save on insurance – and be rewarded for driving safely.
For drivers that don’t clock up a high mileage, and don’t like the idea of being scored on their driving, a pay-by-mile policy (which only prices based on the distance you drive, but not by the style of your driving) could help to reduce the overall costs of insurance.
This could help drivers pay a fairer price based on the exact miles they’re actually driving each month.
4. Don’t fudge the numbers: Don’t lie about the miles you drive. Being caught out driving significantly more or less than you tell your traditional car insurer could invalidate your cover.
This would be catastrophic in the event of an accident and you needing to claim on your insurance.
Due to the coronavirus pandemic, it is likely that many motorists will be driving less than normal.
As such, many will have overestimated the amount of miles when getting their cover.
If you think you’re going to be severely under the miles you’ve put on your policy, it may be worth contacting your insurer.
Matt Wood, Head of Pricing at By Miles, said: ‘As with all insurance policies, if you deliberately misrepresent any facts, including your annual mileage, then this could technically result in your policy becoming invalid.
‘In reality, it’s unlikely your insurer would cancel your policy or cause you issues at claims time if you entered too many miles, but it’s always worth making sure you’ve put in a number that’s as accurate as possible, to make sure you’re not over or underpaying for cover.’