Methods of transport in the United Kingdom over the past 100 years have developed rapidly, and with that development risk, and the consequent need for motor insurance, has expanded alongside. Before the Industrial Revolution there was a dependency on the use of waterways and on animal transport on the ‘roadways’.
The first carriage propelled by steam power and not animal power was built as early as 1769 and in the early part of the nineteenth century certain types of steam cars were invented by Maceroni, Hancock and others. 1885 saw the invention of the internal combustion engine of Karl Benz and Gottlieb Daimler, and in December 1894 the first motor car (a two-seater Benz car) was introduced into England. With the growth of the motor vehicle the class of motor insurance has had to grow and adapt itself as methods of motoring developed and expanded.
Motor insurance began during the early twentieth century and several insurance companies were formed specifically to underwrite that class of business. Most of the specialist motor insurers were eventually taken over by large companies who, in the main, transacted fire and accident insurance. Motor insurance syndicates were established at Lloyd’s from as early as 1916. As the number of vehicles on the roads grew so did the number of accidents which involved injuries. Many injured persons found that they were unable to recover damages because the person causing the accident was either uninsured or under-insured. Many countries started to introduce legislation for compulsory liability insurance to protect accident victims.
In 1930 the United Kingdom government introduced the first Road Traffic Act which made it compulsory for all persons using a motor vehicle on a road to effect a policy of insurance covering liability for personal injury to third parties other than passengers carried free of charge.
Because of lack of experience of rating motor insurance, in the early days there was a tendency for more emphasis to be placed on the subject-matter (the vehicle) than on the driver of the vehicle. As a consequence of this the greater part of motor insurance business tended to be placed with the larger composite companies. During the 1920s these insurers felt that there should be some standardisation of rates and the motor ‘tariff came into operation under the aegis of the Accident Offices’ Association.
The ‘tariff’ meant that insurers agreed to pool their statistics and to set minimum rates for the various classes of motor insurance. The insurers subscribing to the agreement undertook not to offer insurance below these minimum rates, although an insurer could charge more than the minimum rate in certain circumstances. By the mid-1930s some 60% of all motor insurance business in the United Kingdom was in the hands of the ‘tariff’ insurers.
This still meant that a sizeable amount of business was dealt with by non-tariff insurers. These insurers either did not agree with the tariff rules or they may have been smaller specialised motor insurers who had decided to set their own rates and conditions. There was, inevitably, during this period a certain amount of competition between the tariff and non-tariff insurer. The smaller non-tariff companies tended to pitch their rates slightly below the tariff insurers and to improve their policy conditions. This meant that they had to be more selective and only first-class risks were accepted on normal terms, whereas certain ‘tariff’ insurers collected almost any type of undesirable risk because they seemed to feel obliged to accept any risk for which a rate had been fixed.
Lloyd’s motor syndicates did not follow the tariff or non-tariff insurers, setting their own rules and attracting large volumes of business. During the 1939-45 war the need for competition declined since there were fewer vehicles in private use.
In the post-war years competition again resumed but not with the same impact as pre-war, probably because of the emergence of ‘mushroom’ companies. (‘Mushroom’ companies were companies who were in existence for a short period of time. They adopted methods and premium calculations which went completely against normal underwriting practices. Many of these companies collapsed relatively soon after they commenced underwriting.)
The events of the 1960s caused insurers to review methods of collating statistics and rating and after the abolition of the tariff insurers began to introduce new methods of rating. There is so much business transacted by motor insurers nowadays that it is standard practice for rating manuals, showing pre-calculated rates, to be published. The Road Traffic Act 1930 was amended over the years and was consolidated into the Road Traffic Act 1972, which was subsequently amended by the Road Traffic Act 1974.
The RTA requires there to be insurance unlimited in amount in respect of personal injury to third parties caused by the use of any motor vehicle upon a road (called ‘Act’ cover). However, motor policies are very seldom restricted to this cover alone. They usually cover damage to third party property and are not restricted to accidents occurring on a road (called ‘third party cover’). The most popular form of policy was comprehensive which includes (in addition to third party benefits) damage to the insured’s vehicle and various other benefits. From the 1970s (no doubt due to inflation) there has been a tendency to make much more use of third party, fire and theft cover. A survey conducted into motor insurance in the late 1970s suggested that something like 75% of all vehicles on the road were comprehensively insured.