The Transport Committee inquiry into the Cost of Motor Insurance was prompted by the AA’s British Insurance Premium Index which has shown that premiums have been rising steeply over the past two years. Over the whole of 2010, the average Shoparound premium increased by 33 per cent: the biggest increase in a year since the Index started in 1994. Young drivers have seen the biggest increases: those aged 17-22 have seen their premiums rise by over 58 per cent in just one year.

Simon Douglas, director of AA Insurance, says: “We are glad that the Transport Committee has undertaken this Inquiry with such thoroughness. It has brought many of the factors that influence car insurance premiums, particularly personal injury costs and fraud, into the public area.

“At a time when the cost of motoring is soaring, with the cost of unleaded petrol passing the £6 per gallon mark, drivers are looking to the insurance industry to work with the Government to control spiralling claims costs that ultimately fuel premium inflation. For many, especially the young, the cost of insurance is simply becoming unsustainable.

“If the main recommendations of the Committee are implemented I would expect premium increases to come under better control – however, there remains an enormous amount of work to do, particularly in helping young people to start driving safely and responsibly.”

On fraud and personal injury claims, AA Insurance welcomes the concept of a special police unit, funded by insurers. Mr Douglas says: “With insurer control, such a unit could very quickly pay for itself. Fraud, particularly false personal injury claims, is in my view the biggest driver of premium increases.

“At present, it is difficult for the police to commit time and effort to investigating fraudulent claims. A dedicated police unit will also make the work of the Insurance Fraud Bureau much more effective.”

In addition, the AA welcomes the Government’s aim to allow insurers to access DVLA database information which, according to Douglas, “can’t come soon enough.

“Customers being economical with the truth when buying cover has led to an unacceptable number of claims being declined, which is usually when false information comes to light,” he points out.

“Yet insurers are still obliged by law to meet third-party costs even if the policy was fraudulently obtained. This is another major contributor to premium inflation.”

AA Insurance agrees that the Jackson reforms should be implemented, particularly to control the proliferation of accident management firms and personal injury lawyers whose costs often double the ultimate compensation award. It also welcomes the Committee’s recommendation that research should be undertaken to find ways of restraining personal injury claims.

“Stopping cold-call and text message advertising and managing legal costs will help to control premium costs while a more transparent regime will help people understand the relationship between these costs and rising insurance premiums,” says Simon Douglas.

Mr Douglas points out that the growing success of Police enforcement has already reduced the number of uninsured drivers from around one in every 20 to one in 25 motorists – but it remains a significant cost borne by the insurance industry.

“The introduction of CIE (Continuous Insurance Enforcement) is welcome. However, rising costs, especially amongst young drivers, could encourage many more to consider driving without cover particularly after the European Court of Justice Gender Directive becomes effective. So it’s vital to demonstrate that the new legislation is effective and that driving without cover is not worth the risk,” Mr Douglas suggests.

Douglas says he is delighted that the AA’s call for driving to become part of the National Curriculum appears to be recognised, particularly ‘pre-driving tests’ for 14-16 year olds and replacement of the discredited Pass Plus initiative.

The AA, which also operates a driving school, is sponsoring a new BTEC qualification and insurers are already recognising that this is better preparing young drivers for their driving test. It helps to emphasise the responsibility that goes with driving a car.

However, Mr Douglas cautions that making the driving test too difficult, without adequate training, could lead some young drivers not to bother and try to drive without a licence.

Mr Douglas added: “I also agree with the Committee that there is a place for technology-based insurance solutions that track driving standards. With the removal of gender as a rating factor, such systems could well come into their own and help to manage aggressive driving, especially amongst young male drivers.”

The AA is developing an insurance package that uses smart technology that rewards responsible driving and highlight opportunities to help more aggressive drivers change their driving behaviour.

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