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Special Insurance Systems for Motor Vehicle Liability

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Abstract

The fact that automobile insurance is compulsory for most drivers in Europe and the United States raises concerns about its affordability and availability. In most legal systems, to mitigate such problems, special facilities have been created, either by policymakers or by insurance companies, to deal with risks that are very difficult to insure or are even considered uninsurable on the commercial market. In this article we (1) provide an overview of special schemes in several European countries, (2) examine the potential advantages of reducing the number of uninsured drivers and investigate the influence of the special schemes on the decision of individuals to drive (un)insured, (3) examine the consequences of these schemes for the incentives of drivers and (4) discuss the social costs of the special schemes.

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Notes

  1. See, for example, Regan et al. (2009, p. 24).

  2. The term involuntary follows from the fact that in contrast to a normal competitive market, insurers are not free to select those drivers they wish to insure. The term shared follows from the fact that profit and losses are shared by all insurers selling motor liability insurance.

  3. Previous literature dealing with involuntary motor liability insurance markets have mainly (but not solely) focused on the consequences of regulation of the voluntary market on the size of the involuntary market. See, for example, Grabowski et al. (1989); Regan et al. (2009).

  4. This follows inter alia from the coordinated Directive 2009/103/EC of 16 September 2009 relating to insurance against civil liability in respect of the use of motor vehicles, and the enforcement of the obligation to insure against such liability, Official Journal, 263/11 of 7 October 2009.

  5. Article 10, Directive 2009/103 of 16 September 2009.

  6. This follows from chapter 4 of Directive 2009/103.

  7. Note that European law lets the Member States free on how to finance the funds.

  8. Note that the losses caused by uninsured drivers are ultimately paid by the insureds through increased premiums.

  9. For these two countries, we conducted interviews with the representatives of the special facilities.

  10. Meyer (2005).

  11. It often concerns a qualified obligation. Often, insurers have to present offers to all customers, unless a limited number of factors prevails (such as previous termination of contract for default in premium payment).

  12. Note however that the number of individuals driving uninsured in Germany and Denmark is very low: around 0.1 per cent. See Retail Insurance Market Study, MARKT/2008/18/H, Final Report by Europe Economics, p. 194, from www.ec.europa.eu/internal_market/insurance/docs/motor/20100302rim_en.pdf.

  13. See § 25 Kraftfahrzeug-Haftpflichtversicherungsgesetz.

  14. See the website of Insurance Ireland, the representative body of insurers in Ireland, from www.insuranceireland.eu/consumer-information/general-non-life-insurance/motor.

  15. Meyer (2005, p. 69). The Consorcio is also active in the area of other risks, see Machetti (2006).

  16. See the website of this institution: www.consorseguros.es/web/ad_a_fe.

  17. See also the website of the Bureau Central de Tarification: www.bureaucentraldetarification.com.fr/BCTA.

  18. Meyer (2005, p. 115). The website of the Instituto de Seguros de Portugal can be found at www.isp.pt.

  19. See, for example, Acorn Insurance, www.acorninsure.co.uk/car-insurance/high-risk-car-insurance/; 4 Young Drivers, www.4youngdrivers.co.uk/articles/high-risk-car-insurance.htm.

  20. Act of 2 August 2002 concerning mandatory motor vehicle insurance, Moniteur Belge, 30 August 2002.

  21. Parl. Doc., Senaat, 1999–2000, No. 2-247/2.

  22. Report Tariferingsbureau Auto 2003–2008, from www.bt-tb.be/auto/documents/BTB-RAPP-2009-FINAL-NL.pdf.

  23. Article 9 ter, paragraph 1 of the Act of 2 August 2002.

  24. In the period 2003–2008, less than ten people turned to the Tariferingsbureau after they got proposals with high premiums.

  25. Interview with Mr Leton, chairman of the board of the Bureau on 29 April 2013.

  26. Article 9 quater, §2 of the statute.

  27. van Duijse (2013, p. 10).

  28. See www.rialto.nl/consument/verzekeringen/index.php?id=1.

  29. Interview with Leo Bechtold, the Volkskrant 27 August 2003, www.volkskrant.nl/vk/nl/2844/Archief/archief/article/detail/705039/2003/08/27/Rialto-verzekert-onverzekerbaren.dhtml.

  30. Ibidem. In those cases particular agreements, for example, regarding payments in monthly instalments of the premium would be made.

  31. See www.depremievergelijker.nl/20/rialto-verzekeringen.

  32. Interview with Mr Blees and Mr van Duijse of Rialto on 12 February 2013. See also van Duijse (2013), p. 11.

  33. Interview with Mr Blees and Mr van Duijse of Rialto on 12 February 2013.

  34. Interview with Mr Blees on 9 May 2014.

  35. Information provided through email by Mr van Duijse on 10 May 2014.

  36. www.volkskrant.nl/vk/nl/2844/Archief/archief/article/detail/705039/2003/08/27/Rialto-verzekert-onverzekerbaren.dhtml.

  37. Interview with Mr Blees on 9 May 2014 and information provided through email by Mr van Duijse on 10 May 2014.

  38. Interview with Mr Blees and Mr van Duijse on 12 February 2013; Interview with Mr Blees on 9 May 2014.

  39. [www.bankingreview.nl/?portled=bankingreview&h=kennisbank/artikel&id=3752], last accessed on 27 March 2013.

  40. Interview with Mr Blees and Mr van Duijse of Rialto on 12 February 2013.

  41. Since the injurer will often not have enough financial means to pay substantial damage claims.

  42. Baker (2002).

  43. Of course, this will not be the case if the only reason they did not take insurance is that they lack the funds to buy insurance.

  44. Keeton and mpsand Kwerel (1984).

  45. See, for example, Cohen (1997–1998, p. 305).

  46. And if they are not entirely judgement proof, they will bear a part (or all) of the loss they caused.

  47. See, for example, Shavell (1979).

  48. Cohen and Dehejia (2004).

  49. Cohen and Dehejia (2004). With an instrumental variables approach, the authors investigate the incentive effects of automobile insurance, compulsory insurance laws and no-fault liability laws on driver behaviour and traffic fatalities. They analyse a panel of 50 U.S. states and the District of Columbia from 1970 to 1998, a period in which many states adopted compulsory insurance regulations and/or no-fault laws.

  50. Blows et al. (2003).

  51. Cases were all cars involved in crashes in which at least one occupant was hospitalised or killed anywhere in the Auckland region. Controls were 588 drivers of randomly selected cars on Auckland roads. Participants completed a structured interview.

  52. See the section “Special insurance schemes in Europe” on motor guarantee funds.

  53. The uninsureds usually do not have sufficient financial means to pay the losses they caused themselves.

  54. See Report Tariferingsbureau Auto 2003–2007, p. 43, from www.bt-tb.be/auto/documents/BTB-RAPP-2009-FINAL-NL.pdf.

  55. See Uninsured Driving in the United Kingdom, A report to the Secretary of State for Transport by Professor David Greenaway, University of Nottingham, July 2004, from www.direct.gov.uk/prod_consum_dg/groups/dg_digitalassets/@dg/@en/@motor/documents/digitalasset/dg_068758.pdf.

  56. See Teng Sun and Yannelis (2013).

  57. See Derrig and Tennyson (2011, p. 179).

  58. See, for example, Ma and Schmitt (2000).

  59. In some cases people had an accident every three/four months caused through their wrongful conduct. Those are obviously high-risk individuals (interview with Mr Leton, chairman of the board of the Belgian Tariferingsbureau on 29 April 2013).

  60. On the effects of risk classification (or the lack of it), see, for example, Crocker and Snow (2000); Rea (1992).

  61. Shavell (1982).

  62. On the consequences of premiums not reflecting expected damages, see, for example, Schwarze and Wein (2005)

  63. The Bureau provides the following example: “A 19 year old individual makes a request for a vehicle in the sector tourism and business with engine capacity of 66 kW (90 pk). Taking into account his bonus–malus degree of 22, the premium would normally be 3,172 euros, with a deductible of 1,250 euros. The Bureau will however adopt the ceiling of 1,98 euros and a deductible of 2,000 euros”.

  64. Interview with Mr Leton, chairman of the board of the Belgian Tariferingsbureau on 29 April 2013.

  65. Data are available for individuals renewing their policy between October 2008 and January 2009 for the first time in the (largest) sector “tourism and business”. There was a decrease for 85 per cent of the bonus–malus rating and an increase for 11 per cent. Such a decrease means that, in this system of experience rating (bonus–malus), the premium decreases because the insured came into a lower scale.

  66. Not all sectors in which the Tariferingsbureau is active are unremunerative. The largest sector, tourism and business, is profitable (ratio of 0.67). However, this number is only an average for the various age groups. For young drivers, the ratios are extremely high (e.g. 8.19 for beginners of age 18–20).

  67. At least as far as the category tourism and business is concerned.

  68. Interview with Mr Blees and Mr van Duijse of Rialto on 12 February 2013.

  69. Some of the individuals who are proposed a high premium may decide to drive uninsured and, at least in theory, the number of uninsured drivers could in the end be larger with the scheme than without it.

  70. And due too large (bonus–malus system) surcharges in case of an accident.

  71. On the consequences of premiums not reflecting expected damages, see, for example, Schwarze and Wein (2005).

  72. If they are not judgement proof at least.

  73. Also, they do not face the risk of criminal sanctions for driving without liability insurance.

  74. We stress however that potential victims may be able to take first-party insurance against the risk of being injured by an uninsured driver. And in many countries, funds exist to compensate victims of uninsured injurers (e.g. in all the EU countries).

  75. Of course, the social costs of the accidents due to the increased activity levels are partially offset by the increased utility of the high-risk drivers (who would otherwise be forced, e.g. to take the bus, etc.).

  76. See Rea (1992).

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  1. Law and Economics, University of Ghent, Universiteitsstraat 4, 9000, Ghent, Belgium

    Jef De Mot

  2. University of Maastricht and Erasmus University, Rotterdam, The Netherlands

    Michael G Faure

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  1. Jef De Mot
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De Mot, J., Faure, M. Special Insurance Systems for Motor Vehicle Liability. Geneva Pap Risk Insur Issues Pract 39, 569–584 (2014). https://doi.org/10.1057/gpp.2014.23

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