Courtesy of Shiny of the Maxpower Forum, well respected insurance guy, very knowlegdable. Asked him for his permission and it was granted AGES ago, think I posted it on the old forum...but for newer users...
There are many posts regarding insuring cars in Parent’s names to get cheaper insurance and they often lead to heated discussions and opinions from misinformed people. Here are some facts as to why it is fraudulent and you should not do it, which I hope will put a stop to misinformed opinions and potentially dangerous advice from people who do not understand the industry, the processes and the legalities.
The first question is probably “Why should I listen to Shiny?”. If you are a regular user of the forum you would have probably realised that I do actually know my onions where insurance is concerned. I have worked in a high street Insurance Brokers for the last 17 yrs, managed the Personal Lines department (household, motor etc) and now handle Commercial insurance, specialising in Motor Trade. My advice is not tied to one Insurer and is indicative of the market, although there are obvious differences between some insurers in their methods, the basic insurance principles are the same regardless of who you are insured with.
Now, onto how it works. Firstly “Insurable Interest”, one of the basic principles of insurance. The purpose of insurance is put a policyholder in the same financial position after a claim or loss as they were before the claim or loss (with the exception of any excess etc). Therefore if my car gets stolen, and its market value was £5k, my insurers will pay me £5k to put me in the same financial position I was before the car was stolen. Now, if I was not the legal owner of the car and it belonged to, for example, my son, but I insured it in my name, I will not actually suffer any financial loss if it was stolen. Therefore I have no insurable interest. My son will actually suffer the loss, therefore he must insure it in his name. The registered keeper is not necessarily the legal owner of a car, so just changing the log book does not make this alright.
Insurance premiums are calculated on the risk exposure. Fact, young drivers are a high risk and attract high premiums. The amount of use available to a young driver as an additional driver under a policy in their parents’ name is an essential factor in the rating of a policy. It is not wrong for young drivers to be named under their parents policies as long as all the information provided to an Insurer is correct. When I was learning to drive I was added to my mother’s policy. She had been driving her own car for a number of years and used it every day to commute to work. Even when I passed my test, I was only able to drive the car in the evenings or at the weekend when she wasn’t using it. I was added to the policy and noted as a “frequent” driver (not the main driver) as this was genuinely the case and could easily be proved to be the case. When I bought my own car, I insured it in my own name.
Here are two scenarios –
1. A 17 yr old buys a car and insures it in his own name.
2. Dad buys a car for his 17 yr old son to use, Dad is the legal owner and registered keeper and therefore insures the car in Dad’s name. The car has been bought for the son and he will be the main user.
The risk exposure is exactly the same, as the 17yr old is the main driver regardless of who the policyholder is. Therefore the premium should in fact be the same. In some cases, scenario 2 will work out more expensive as discounts for insured only to drive will not apply.
Now the only way that scenario 2 will work out cheaper is if fraudulent information is provided to the insurers to make the risk look more attractive, by lying as to who is the main user of a car and saying Dad is the main user and son is only an occasional user. This is no different to lying about your age, lying about your car (saying it’s a 1.4 GL instead of 2.0 GT Turbo), lying about where you live (saying you live in a field in Devon rather than the middle of Greater Manchester). If you are providing false information to reduce your premium it is deliberately trying to misrepresent the true risk and deceiving your Insurers, which is fraud.
Now, to make matters worse, it is often the case that when policies are taken out in parent’s name, that in addition to lying about the main user, the ownership is also presented wrongly to the insurers, saying that it is the parent’s car when it has been bought by the young driver. As I have said earlier, Insurable Interest is a basic principle of insurance so, first off, there will be a major problem here. Secondly, again a risk has deliberately misrepresented to an insurer to make it look more attractive and to deceive the insurers to obtain a cheaper premium, which is fraud.
So, what happens if you have taken out a policy in your parent’s name and are found out. There is a very small possibility that an underwriter may suspect foul play when finalising the issue of policy documents or if there is an audit check, but in all fairness, you are really only like to be rumbled after an accident has occurred, which is the time when you will need your policy most of all. If a loss adjuster is involved, he will make a report to the Insurers, the underwriters will study the proposal form and if there is evidence of “non disclosure” or fraudulent information, from the information presented at the time of the proposal (which is the contract upon which the insurance is based), it is most likely they will not indemnify the claim and cancel your policy from inception, making all cover “null and void”. You will then be responsible for all costs as a result of the accident. As your insurance is invalid, there is a possibility of a motoring conviction for driving without insurance, 6 points minimum, a hefty fine, possibly even a ban. If the insurers see fit, they may also wish to prosecute you for fraud which could result in a criminal conviction. The policyholder (your parent) could also be facing the same prosecutions.
There is a question on an insurance proposal form that asks if you have ever been refused or declined insurance or had a policy cancelled by the insurers. If you end up having a policy cancelled due to non disclosure or fraud, you have to disclose this on your future policies. It is an absolute nightmare getting insurance if you have had a policy null and void under these circumstances. Only non-standard insurers will touch you and will want a very very hefty premium.
Loss adjusters are not usually involved in small claims, but at the end of the day, if the damage is £500 and your claim gets kicked out, £500 won’t cripple most people. But it’s when the claim runs into thousands of pounds that you really want your Insurance to be totally in order. I personally have dealt with a claim involving a cyclist where the reserve was £500,000. If you t-boned a car and crippled a load of Harley Street Surgeons on the way to meeting, the claim could run into £millions. Look at the Selby disaster, a few seconds of lost concentration has cost many many millions. Quite often the way the courts work is that the MIB (Motor Insurance Bureau) become involved and insist the Insurers pay the injured party. The Insurer’s then have a right to recover their outlay from you, as your policy has been invalidated due to fraud. Saving a couple of hundred pounds could cost you thousands and thousands of pounds.
So, now you know the potential consequences, you might think to yourself “how will they ever know?”. Well if a loss adjuster is involved. He will look for obvious signs, like the number of cars in the family, who is entitled to drive each car and so on, to establish a general picture. Then he will ask to see receipts, petrol receipts, servicing receipts etc and see what name they are in. If the car was still driveable, he may have been hiding and watching the pattern and use by each driver for the previous week or two before you even know he is involved (and then show you pictures to contradict any more lies you may present him with when interviewed). He will want to know how each person gets to work. Now there are other obvious things like dad owning a Saab Estate and also a Nova with a BB4 and Max Power Sunstrip and two 12” bass boxes in the boot (assuming modifications have been disclosed which is another topic entirely!) which the 17yr old son hardly drives? He may interview neighbours to establish the use by each driver, interview people at the workplaces and neighbouring work places of each driver, again to establish who drives what to where on a daily basis. I’m sure there are many other methods they use, but I hope this is drawing a picture for you. They do this every day, it's their job, they know every trick, every lie, every "loophole".
I do believe there is a problem in the industry where Insurer’s employ telephonists to provide motor quotes for cost efficiency, these people are generally data input clerks and do not have the knowledge for alarm bells to ring where young drivers and parents insuring cars are concerned. The same applies to internet quotes. But they are relying on people to provide truthful information and answers, which is confirmed by the signing of the proposal form or by agreeing to the statement of fact.
Now all the legalities aside, you will not earn any no claims bonus insuring a car in your parents name. By the time you reach 21, you may have left home, and you might want a tasty car as the market has opened up being over 21.