Parents fronting kids' insurance risk losing it all
Some Kiwi parents are at risk of having their insurance policies cancelled and claims declined, because of they way they insure their kids' cars.
The practice of "fronting" describes parents who take out insurance for themselves and a teenage driver, pretending they will be the main driver of the vehicle, when in fact their child will be behind the wheel most of the time.
It is a common problem in the UK, where one study found one in 10 parents of drivers aged between 17 and 25 admitted wrongly telling an insurer they were the main driver of a car.
It's estimated that just under 100,000 British parents are currently fronting their kids' insurance policies.
But it is happening in New Zealand too says David Crawford, chief executive at the Motor Industry Association and former general manager of land transport and environment and safety at the Ministry of Transport, who says the practice is common.
In some cases, the car might be shared between the parent and the child, but the parent claimed to do more driving than they really did. In others, the child drove the car almost all the time, he said.
A driver under 25 can be charged more than $1000 a year in premiums for insurance on a car that would cost an older driver about $400.
But while fronting provides a premium saving, drivers can be left out of pocket if a claim happens and the insurer discovers it was given inaccurate information.
Insurance and Savings Ombudsman Karen Stevens said it was particularly common for mothers of sons to help their children insure their cars.
Her scheme has dealt with many complaints from people who have had claims turned down because insurers discovered they were fronting.
In many cases, the family had listed the young person as a nominated driver but not disclosed they would be the main user of the vehicle.
Stevens said: "Over the years, we've seen a number of them and they have serious consequences for not only the son who finds he's not insured when he makes a claim, but also the mother."
She said if an insurer found out it had been given inaccurate information it could cancel all the parents' policies, including house and contents cover and insurance for other vehicles.
That makes it much harder to get insurance elsewhere because applicants must disclose whether they have ever had a policy cancelled.
IAG, which operates State and AMI, said customers needed to understand who was insured to drive their vehicles, and for insurers to understand who they were insuring.
"A young driver also benefits from being identified on an insurance policy through building up their driving history, which then enables them to demonstrate a safe driving record and become eligible for low-claims discounts at an earlier age."
Stevens said there were options for people who found it hard to get insurance, such as specialist insurance firms like Club Auto that are more willing to take on riskier customers, and the option of cheaper third-party cover.