Car insurance Updated:
The cost of car insurance has been steadily rising in recent months, and new figures from the Association of British Insurers (ABI) show that this isn't a trend that's set to stop any time soon. In fact, premiums continued to rise sharply in the final three months of 2015, and much of it can be attributed to the rise in Insurance Premium Tax in November.
The level of Insurance Premium Tax (IPT) rose from 6% to 9.5% in November 2015, but rather than insurers footing the bill, the rise was passed onto consumers in the form of higher premiums. They've quite literally paid the price of the tax hike – the ABI's latest Quarterly Motor Insurance Premium Tracker shows that UK motorists saw the cost of comprehensive car insurance policies soar during the final quarter of the year, with the average price paid rising by 7% compared with the previous three-month period – and by 8% over the year – to stand at £430.
However, we can't place all the blame on the increase to IPT. The figures revealed that, even without the tax hike, the average price that motorists paid for car insurance rose by 4% compared with the previous quarter, continuing the upwards trend noted for much of last year – and this time, it's thought that much of it is due to the rise in low-value personal injury claims.
Previously, Government reforms had been implemented that reduced the legal costs in settling personal injury claims, and insurers passed on over £1bn in savings to customers in the form of lower premiums. This is what drove the general reduction in premiums seen around 2014, but since then, they've started to creep back up – and the Government is being urged to step in once again.
The rise in low-value personal injury claims has arguably been driven by rogue claim management firms - additional ABI figures show that 83% of those surveyed had been cold-called by such firms encouraging them to claim financial compensation – and as such, the Government has been called upon to "get tough" on these companies to help stem rising premiums.
"Motorists have been hit by a double whammy of increased Insurance Premium Tax, and rogue claims management firms who encourage speculative and fraudulent claims," said Rob Cummings, the ABI's manager of General Insurance. "Motorists continue to shop around to get the best deal, but average motor insurance premiums will only fall once the cost of personal injury claims is properly tackled.
"We need to drive the cowboy claims management firms out of town, which is why the Government's current review of the sector must result in tougher regulation. This, together with implementing further reforms to tackle frivolous claims such as increasing the small claims limit, will ensure that the brake is applied to higher motor premiums."
Car insurance premiums may be rising, but there's still something you can do to reduce the impact on your wallet – shop around! Different insurers will invariably offer different prices, so when it's time to renew, make sure to compare the available options to see if you could get a better deal.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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