Car insurance Updated:
After welcome falls in car insurance in recent months, it looks as though things could be about to change. Figures from the AA have revealed that average car insurance premiums increased by more than 5% between March and June this year, and that's before the Government's unexpected increase in insurance premium tax (IHT) kicks in, which means that the days of cheap car insurance premiums could be coming to an end.
According to the AA's British Insurance Premium Index, the average Shoparound quote for a typical comprehensive car insurance policy has now risen to £549.46, up 5.2% over the three months to the end of June 2015. This is in sharp contrast to the previous two quarters where premium prices had "levelled off", meaning that over the last 12 months, the average quoted premium has risen by 5.5%.
Younger drivers have seen the sharpest premium rises – another change from recent norms – with those aged 23-29 seeing a 6.2% jump over the same three-month period to an average price of £682.62. Those aged 70 and above saw the lowest rise with typical premiums up by 3.8% to £392.13, while the youngest drivers overall – those aged 17-22 – are still quoted by far the highest premiums at an average of £1,241.81 per year, an increase of 4.4% over the past three months.
However, these increases haven't been entirely unexpected, as Janet Connor, managing director of AA Insurance, commented: "Thanks to bruising competitive pressure, premiums have been falling while claims costs have continued to rise – particularly for personal injury. Indeed, the number of injury claims reported has been increasing at around 10% per annum since 2013.
"[This means that] insurers have been releasing their reserves to maintain their competitive edge to the point where this is no longer sustainable, so we are seeing premiums beginning to rise once more. The days of cheap car insurance premiums are over – price rises are inevitable."
By all accounts, the latest round of price rises could continue for the foreseeable future. Ms Connor added that she expected premiums to continue to rise steadily for the rest of the year, while the Government's increase to insurance premium tax (up from 6% to 9.5%, due to come into effect in November), is likely to result in an even sharper rise.
"This stealth tax grab will add around £18 to the cost of a typical comprehensive car insurance policy, and it has come at a time when insurers have no capacity to absorb that cost and will have to pass it on," added Connor. "Increasing IPT will have unintended consequences, not least that more people are likely to shop around. This could lead to introductory offers drying up as insurers re-think their pricing. That will lead to a much sharper average increase than the tax rise suggests.
"I also fear that those on the lowest incomes may consider driving without cover, undoing the good work carried out to bring down the number of uninsured drivers. If that happens, it will also put more upward pressure on premiums."
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