Car insurance costs set to continue rising

Another day, another set of figures to say that car insurance costs are rising – and unfortunately, there's no end in sight.

Four-year high

The AA's latest British Insurance Premium Index shows that car insurance quotes jumped by 5.8% during the last three months of 2016, adding £35 to the typical policy and continuing the two-year run of premium rises. It's also pushed costs up by 11.7% over the last year, with the typical Shoparound quote for a comprehensive policy now standing at £633.06 – the highest seen in four years.

However, quotes for third party, fire and theft policies have risen by an even greater amount: the average quote is now a whopping £940.56, an increase of 8.9% in the last three months alone and up a significant 19.4% year-on-year, which means it could now actually be far cheaper to opt for comprehensive cover.

Combination of factors

According to Michael Lloyd, the AA's director of insurance, several factors are influencing car insurance premiums, with the latest Insurance Premium Tax (IPT) rise
being a key part of the story. As he points out, "uninsured driving is rising, partly I believe because of the increases in Insurance Premium Tax, which will rise by another 2% in June". The continued rise in IPT means policies are becoming more expensive for everyone, which has resulting in some no longer being willing to pay for it – the knock-on effect being that premiums rise even more, with uninsured driving adding an extra £35 to a typical policy.

Not only that, but "fraud – particularly whiplash claims – continues to dog the industry", he said, with personal injury claims companies being a continuing blight. Indeed, the AA found that 63% of respondents were contacted by a claims management company in the last 12 months about personal injury claims – 34% of whom were contacted more than 10 times – and it seems that some are willing to go down that route.

"Claiming for an injury even if none was suffered is so embedded in British culture that 44% of respondents agreed that making a claim for injury has become 'an easy way to make money'," said Michael, so while he concedes that the number of personal injury claims has started to show signs of slowing recently, there's still a long way to go.

After all, detected insurance fraud costs the insurance industry £1.3bn, said the report, and while the number of traffic collisions has fallen by 39% over the past 15 years, the number of injury claims (largely whiplash) has rocketed by 90%, adding around £40 to the average car insurance premium. It's hoped that the new reforms to help curb cold-calling will go some way to stopping the march of whiplash claims, and ultimately of car insurance costs: "I have little doubt that if the number and cost of claims falls, then the cost of an annual insurance policy will also fall," said Michael.

Then there's the rising cost of accidental damage, which could also be adding to premium costs. The AA says that the cost of accidental damage claims is adding around £25 per year to the average quote, which means it's having almost as much of an impact as whiplash. "As of a year ago, insurers were seeing 20% rises in the cost of average repairs for damage to their policyholders' cars," said David Brown, Insurance Partner at KPMG UK, so as the cost of cars increases, so, too does the cost of repairing them – and ultimately insuring them.

Further rises predicted

Unfortunately, this all means that there may be no quick end to the rise of car insurance premiums. "I expect that when new figures come out over the next few months, there may be more bad news with costlier accidental damage repairs, which may well lead to premiums suffering further upward hikes," said David.

Michael is equally as pessimistic when it comes to the impact of the next IPT rise, particularly when it comes to younger drivers. The Index revealed that those aged 17-22 already pay by far the most for their insurance cover – an average of over £1,400 per year, compared with just £380 for those in their 60s – which means they'll be hit even harder by the IPT hike.

As Michael pointed out, this could be fuelling the rise in uninsured driving, which "isn't a victimless crime because compensation for injury and damage to third parties, caused by uninsured drivers, is ultimately paid for by insurers.

"We join the British Insurance Brokers' Association in calling on the Government to cut IPT from the premiums paid by young drivers for the first two years of their cover – which will help with the affordability of cover as they build up a no-claim bonus as well as ensure that they start driving legally."

Whether that call is listened to or not, there's as yet no sign of car insurance price rises slowing, which means you'll need to work even harder to get your hands on a low-cost quote. Make sure to compare the options thoroughly, and remember to never skimp on cover if you want to be confident in being prepared for any eventuality – average costs may be rising, but if you're proactive, it hopefully won't have too much of an impact on your wallet.

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