We analyse the practicalities and possible implications of the Mayor deciding to make private hire operators insurance mandatory.
In his Taxi and Private Hire Action Plan 2016 published in September the New Mayor laid out a number of measures that he believes, “Will drive up industry standards and improve passenger safety whilst creating vibrant taxi and private hire markets.”
One of the key areas he has instructed TfL to target is private hire insurance. We cast our expert eye over the new rules and those being considered.
The industry’s regulator has already introduced what they describe as new,
Robust ‘hire and reward’ insurance requirements that mean a policy has to be in place for the duration of the vehicle (private hire) licence, including when the vehicle is presented to us for inspection.
The measure is intended to ensure that private hire drivers have “correct insurance, meaning that both the passenger and driver are properly covered should an accident occur” in place at all times.
We highlighted on our previous blog that although we believe this new law has an admirable goal, TfL have no way of effectively enforcing it due to severe flaws in their systems of detecting drivers with inappropriate cover during the vehicle’s licence period.
Subsequently we met with their compliance team, twice, to try to encourage advancements in their use of technology to deter drivers that continue to evade detection by exploiting loopholes in their processes.
As yet we have had no confirmation that the necessary actions to avoid further systematic abuse have been taken.
However – the Mayor’s plan makes clear that TfL are planning on building on this measure by:
Exploring the potential for private hire operators to have their own hire and reward fleet insurance, covering all their registered drivers and vehicles, by spring 2017.
Doing so would see the onus for private hire insurance (a policy that provides cover for carrying passengers for the purposes of hire and reward) away from drivers where it currently sits and putting it onto private hire companies who TfL believe are easier to hold to account.
We have concerns that the implementation of this proposal will force honest private hire drivers to pay out for insurance twice. Many small companies that operate entirely legitimately will have a substantial additional overhead to meet that should be unnecessary.
This scenario would in all likelihood undermine the Mayor’s intention to raise industry service levels by reducing competition in the market. Those that don’t pay for insurance will continue to operate illegally. Those that obey the rules will see their costs rise considerably.
Unlikely Bedfellows: The LTDA and Addison Lee
The LTDA favours this move as the black cab drivers’ insurance is already heavily scrutinised by the regulator with more frequent inspections and a requirement to display their certificate in their cab’s at all times.
We particularly welcome the mayor’s decision to re-visit the requirement for operator insurance for PH vehicles and his request that central Government define plying for hire in statute.
Steve McNamara of the LTDA
You’ll probably be surprised to learn that the black cab trade has an unlikely ally in the form of the UK’s largest private hire operator Addison Lee are actively lobbying for the introduction of operator insurance.
This stems from the fact that Addison Lee already has a fleet insurance policy that it self-insures. Therefore the new requirement would not load any more costs into their business model and would in all likelihood aide their ability to compete with their rival for market share from across the Atlantic.
By contrast leading taxi app provider Uber are opposed to the new regulations that require drivers to pay for commercial insurance during periods when the vehicle is not used for business.
Tom Elvidge their General Manager in London accused the mayor of “Piling extra costs and red tape onto licensed private hire drivers.” As a result the American firm has initiated legal action against TfL . They are also unlikely to favour the introduction of operators insurance as it could move some or all of the cost for insuring vehicles onto their balance sheet.
There is no hiding that operator insurance could be a lucrative opportunity for the insurance industry. Plan and our competitors will be gifted the chance to sell additional mandatory policies to our client bases. We also ordinarily favour any initiative designed to eradicate uninsured driving within the taxi and private hire industries.
Yet with both those considerations in mind we are still concerned by several significant flaws that operator level insurance presents.
The problems with Operator Level Insurance
TfL is still only considering operator level insurance and this is presumably because there are numerous practical obstacles that will need to be overcome before it can be introduced. As far as we’re aware the regulator is consulting with Association of British Insurers to garner their expert feedback. Below we highlight points that we feel requiring clarification and consideration:
- What will happen in the common circumstance that sees private hire drivers use their personal car for business purposes? Would drivers still need to take out a social, domestic and pleasure policy and the operator cover the vehicle for hire and reward use? This could make establishing liability for accidents particularly complicated. Also we believe that operators may have a strong legal case to oppose an attempt to obligate them to insure their drivers’ vehicles. This would be on the basis that the operator could argue that their companies have no “insurable interest” in the vehicle due to a lack of ownership.
- Another technicality exists whereby any driver wishing to work for more than one operator could fall foul of being “dual insured.” Whereby two insurance policies should not be held to cover just one item to prevent issues arising when two insurers need to decide who is liable for the cost of a claim. For example – which insurer would pay out if a vehicle was to be stolen when in a drivers possession whilst they’re not working?
- How will the high number of private hire vehicles on the road be monitored under this system? Verifying that operators are meeting their new obligations and insuring every vehicle at their disposal will still require a considerable amount of compliance man power and could remain open to abuse.
- Who is liable if a vehicle being used for private hire is found not to have the appropriate hire and reward cover in place– will the driver have their vehicle badge and licence revoked or will TfL penalise the operator?
- Will this requirement apply to all taxi operators or only those operating a large fleet over a certain number of vehicles?
- It is likely the operators will pass the additional cost of operator insurance onto their drivers. In which case a very real risk of private hire drivers being required to work even longer hours to cover their increased overheads. The Mayor has stated that the overriding aim of his plan is to increase standards and to protect the public. Will steps be taken to prevent these drivers being charged excessive arrangement fees?
It is worth pointing out that uninsured passengers are already protected by the Motor Insurance Bureau (MIB). If they suffer the misfortune of being involved in an accident in an uninsured private hire vehicle passengers will most likely suffer the inconvenience of delayed compensation payments – but they are protected.
Ultimately 1 million uninsured drivers on the UK’s roads cost the insurance industry around £380 million a year.
This equates to approximately an extra £30 on every motor policy for law abiding drivers. Research suggests uninsured private hire drivers contribute a significant amount to this figure.
So it is not entirely unreasonable to ask the private hire industry to cover the cost of contingency cover that will provide adequate protection to the public should the system fail them. However it will no doubt be legitimate businesses that already operate within the existing rules who will bear the brunt and fraudulent drivers will continue to do the trade a disservice.
Conclusion
At this stage we are not totally opposed to the introduction of mandatory operator level insurance. However, considerably more information will need to be presented on how it will work in practice before we can agree to support this proposal.
We restate our current preference for TfL to prioritise working directly with the MIB in order to use the Motor Insurance Database to monitor in real time insurance status of taxi drivers.
Hopefully TfL will conduct a full consultation with both the insurance and private hire industries before imposing a new regulation. We fear that the measures could be rush through and introduced without proper consideration and communication.
This was the case with the recent “continuous cover” measure. TfL had previously provided reassurances that they had no time-frame for its imposition and further discussion with key stakeholders would take place beforehand. Instead it was announced via a brief email to drivers at 4pm on a Friday afternoon. That resulted in 1,000s of concerned drivers calling their insurance providers for clarification but unfortunately they were none the wiser regarding their new requirements.
We believe the insight of specialist brokers such as ourselves could prove useful. At Plan we serve both the taxi and private hire industries without prejudice. We offer impartial opinions to both trades that until recent years had operated in tandem fairly harmoniously for the best part of two decades.
Read more: TfL Proposals Anger PH Drivers