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Record low insurance premiums… but will it last?

Record low insurance premiums… but will it last?

Category: Insurance

Updated: 28/04/2014
First Published: 28/04/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The insurance renewal hits the door mat and you dread opening it in case of a price hike. Next step is to hit our Moneyfacts comparison tools to see if you can get a better deal. Well, the good news is it looks like you will currently be finding some inviting quotes… but the question is, will it last?

The average quote received for comprehensive motor insurance in the first three months of this year was more than £105 cheaper than a year ago, according to research from the AA. This record fall in car insurance premiums sees motorists enjoying the lowest prices for three years.

These downward prices have been influenced by legal reforms to curb fraudulent claims, especially those that involve whiplash which can be hard to disprove. However, although this has caused competition in the market, actual claims have in fact risen – a worrying issue for the longer-term view of prices.

Simon Douglas, director of AA Insurance, feels the past three years of falling premiums could be coming to an end and, unless so-called "cash for crash" fraud is controlled, premiums will rise. He said: "Fraud adds around £50 to the cost of every car insurance policy and will eventually lead to premium rises. But Government intervention to further toughen up the legal processes could help prevent the otherwise inevitable sharp rebound in prices.

"I do expect premiums to start rising again this year unless the fraud issue can be quickly dealt with. If not, it's likely to be young drivers, those with a poor claims history or localities where there are frequent claims, who will find it most difficult to obtain competitive cover."

Despite these fears, consumers can enjoy the fall in rates – at least for the time being. Younger drivers between 17 and 22, the age group always hit with the highest premiums, are the ones who have been enjoying the biggest falls – around 10% over the last quarter - with the average quote standing at £1,158. Conversely, it is older drivers, aged over 70, who saw the smallest fall of just 1.3%.

In more good news, home insurance premiums have also been experiencing falls in prices, despite the winter floods and storm damage. According to the AA, the average contents insurance policy is just 4p more than in 1994 and buildings insurance quotes enjoyed a fall of 6.5% over the last year.

Simon Douglas adds: "What is clear from these figures is that the flooding earlier this year – which was widely expected to affect home insurance premiums – has made no difference to the downward trend that has now continued for two years.

"The home insurance market is very competitive, but its profitability is dependant on severe weather, floods, freezes and subsidence. Insurers don't change their rates as regularly or as frequently as they do for motor, so premium movements tend to be more stable. It would take widespread severe weather damage to trigger a rapid change in rates across the market. I don't believe we'll see much pressure on premiums until and unless that happens."

It's not very often we can revel in the prices of services falling, so enjoy it while you can. Don't instantly accept the renewal quote that falls on your doormat, instead always ensure you are getting the best deal on all your premiums by using our various comparison tools – it could save you pounds.

What next?

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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.