Taking to the road

One of the features that sets motor insurance apart from most other classes is the fact it is compulsory. Why is it that motorists are forced to buy insurance before they take their vehicles on the road?

First, some history. At the end of the 19th century, motor vehicles were not uncommon, but were mainly regarded as eccentric playthings and not taken too seriously. The speed limit was 4mph and the law required drivers to have someone walking ahead of the car waving a red flag. This was to warn the public, especially horse drivers, that a motor vehicle was on its way.

By the end of World War I, most people were aware of the capability of motorised vehicles and many new drivers took to the road. Unfortunately, at that time there was little in the way of driving tuition, highway codes or traffic awareness, and this resulted in many accidents. Driving tests were not introduced until much later.

No guarantee
If a person was injured in an accident caused by a driver, their chances of receiving compensation depended on whether the driver was insured or not and, if not, how much personal wealth the driver possessed.

This meant that, in many cases, victims received no compensation at all, or they had to wait until the driver was able to afford to pay him. The most unfortunate of these cases had to fall back on the state for support.

By the end of the 1920s, this had become an intolerable burden and the government introduced compulsory motor insurance (the Road Traffic Act 1930). The law required every motorist to be insured before using a vehicle on the road. At this stage, the only requirement was cover against claims by victims in respect of injuries caused by drivers.

The law stated the cover had to be for an unlimited amount - every motorist was driving with an unlimited amount of money at their disposal should they cause an accident (the "deep pocket" principle).

Drivers were not required to insure against damage to victims' property, such as other cars, walls and animals. Also, there was no requirement to insure against liability for injury to passengers in the driver's own car.

Compared with a modern comprehensive policy, this cover is very restricted. Most sensible motorists chose a wider form of cover that included damage to property, liability to passengers and damage to their own car.

Additionally, while the law only required insurance while the vehicle was on a road, insurers widened their standard cover to cover the driver irrespective of whether the vehicle was on a road or not; for example, in a private estate, on factory premises or on a building site.

Some insurers took advantage of the low level of minimum cover by excluding passenger cover for certain risks which they considered hazardous, such as young drivers, and it was not uncommon to see a car with a sticker on the passenger's dashboard stating "Passengers carried at their own risk". In addition, most insurers excluded passenger cover for pillion passengers on motorcycles.

This minimum cover remained until 1972, when EU membership required the UK to bring its compulsory motor insurance laws into line with the rest of the EU. As a result, the 1972 Road Traffic Act made passenger liability compulsory.

In terms of impact on the insurance market and on motor insurance premiums, this was virtually a non-event, as most policies already covered the risk. However, many motorcycle insurers, faced with the prospect of paying claims from pillion passengers elected to close their motorcycle accounts (crash helmets were not then compulsory).

The change also had an effect on claims dealt with by the Motor Insurers' Bureau (MIB), as from 1972 it had to deal with claims involving passengers of uninsured motorists.

This had a knock-on effect to the levy paid by insurers to the MIB to pay these claims.

The remaining "loophole" in compulsory cover, damage to victims' property, was closed by the Road Traffic Act 1988, again as a result of membership of EU.

This was even more of a non-event than passenger cover had been in 1972, as in 1988 only a handful of motorists did not have property damage cover.

However, for the MIB it was a different story as they now had to pay victims' property damage claims as well as injury claims where there was no insurer to pick up the bill. As a result, the levy on insurers to pay MIB claims has risen dramatically since that time and has led to the introduction of the Motor Insurance Database to combat uninsured driving.

Potential costs
The limit of liability required by law for property damage is £250,000 (bodily injury has no limit). This is very low, compared to the damage a motorist could be responsible for. Motorists tend to think of hitting other cars, but take the Selby rail crash for example - how much does a train cost? In another example, a petrol tanker could explode or rupture and burn down a complete row of houses.

Most insurers recognise this and issue private car policies with both property damage and injury unlimited. On commercial vehicle policies, property damage is usually restricted to £5m, with a facility to increase if required.

Until April 2000, the law only applied when the vehicle was on a road, but since then the requirement is "on a road or any public place".

In terms of policy cover, this is largely academic, as very few policies were restricted to Road Traffic Act situations. However, it clears up some areas of doubt as to whether car parks etc. were covered by the law and has an effect on claims referred to MIB.

The compulsory motor insurance legislation also requires the motorist to cover payments where a victim needs treatment by a doctor at the scene of an accident. This is irrespective of whether the driver is at fault for the accident or not (Road Traffic Act 1988 s 158).

Payment for hospital treatment only applies where the motorist is at fault (Road Traffic Act 1988 s 157).

The Road Traffic Act 1988 states a motorist must be covered against