Are young drivers getting ripped off with car insurance?

Young drivers are more likely to have an accident, according to statistics.

Kevin Stent / Stuff

Young drivers are more likely to have an accident, according to statistics.

According to a study by the insurance company AMI, drivers under 25 are 26% more likely to be involved in an accident than older drivers.

But that means they also pay more for their car insurance. So, are they getting a fair deal?

According to New Zealand transport agency Waka Kotahi, drivers with restricted licenses were seven times more likely to be involved in a fatal or serious accident than other drivers.

The data also showed young restricted drivers were more at risk of having a serious crash in the first six to 12 months of driving solo with their restricted license than at any other time in their lives, in part because of their inexperience in driving.

* $40,600 debt owed by uninsured driver will take a decade to pay off
* Insurance claim denied after learner driver was left ‘unattended’ by sleeping passenger
* Young driver crashes rise despite introduction of stricter restricted license test

Drivers under the age of 25 were therefore a risk for insurance companies and, as a result, their premiums were higher than those of older drivers.

According to MoneyHub, the lower the age of the driver, the higher the price of insurance. His research indicated that 17-year-olds paid more than 21-year-olds.

Many countries have laws requiring drivers to be insured. New Zealand does not, although policymakers have considered doing so on several occasions.

MoneyHub compared the quoted price for comprehensive insurance from AMI, AA Insurance, State Insurance, Trade Me Insurance, and Tower Insurance for a 2010 Toyota Corolla without a car alarm and parked off-street but not in a garage.

His sample of drivers was a 17-year-old male and a 17-year-old female with no accident history and holding a restricted license since 2021.

The drivers traveled approximately 2,000 km per year, and the vehicle was for private use and had an insured value of $9,000.

He found that while some insurers were competitive (AMI and Trade Me Insurance), others were quoting well above average (AA Insurance and State) for a stand-alone policy.

Digging a little deeper, MoneyHub discovered that a 17-year-old man in Takapuna, Auckland would pay $1225.80 through AMI, while a woman would pay $1190.23. State Insurance was the most expensive at $2516.73 for a male and $2297.56 for a female, and Trade Me Insurance was the cheapest at $1609.30 (male) and $1421.15 (female).

The state was most expensive in Hamilton, Wellington, Christchurch and Dunedin, but had the lowest young driver deductible for a driver aged 21 to 24, at $450. The highest deductible was at AMI, at $1150.

Paying the annual auto insurance premium in a lump sum was between 10% and 15% cheaper than paying in monthly or semi-monthly installments, saving about $100 to $200 a year.

But lecturer at Massey University, Dr Michael Naylor, said insurance companies had every right to base insurance and premiums on statistics.

Dr. Michael Naylor says auto insurance can be discriminatory and the system could be better.


Dr. Michael Naylor says auto insurance can be discriminatory and the system could be better.

“The law allows insurance companies to discriminate based on things they can statistically prove,” he said.

This meant they could use age and gender to alter premiums, but it didn’t mean people under 25 were being ripped off.

“Insurance companies don’t have general driving data, they only have data on when you have an accident.

“And so it’s hard to tell which drivers are good and which drivers are bad.”

But more and more sensors were installed in cars, which monitor driving behavior.

An example was in the UK, the Drive Like a Girl program fitted young drivers with an in-vehicle sensor that tracked acceleration, braking and the speed at which they took turns. Good driving was rewarded with a premium reduction, bad drivers were charged higher premiums, Naylor said.

“It can start to solve the problem of discrimination,” he said.

Previous 2022 AARP Auto Insurance Review - Forbes Advisor
Next ASFA Responds to New CRL Report on Installment Loans | Ballard Spahr LLP